Covid-19 dominated much of the world’s attention in the last few years, until this February when Russian President Vladimir Putin ordered a “special military operation” in neighbouring Ukraine.

The economic fallout from the Russia-Ukraine war, most notably on soaring energy and food prices, has since displaced the pandemic as the immediate worry for most business leaders but it is not the only challenge they should be concerned about.

An annual Swiss Re report on emerging risk topics that could potentially disrupt the global financial system or the broader economy, with implications for the insurance industry, has set out in detail a list of 14 peril trends spanning technological, economic, social and environmental areas that should not be overlooked.

Climate change and its related impacts such as thawing permafrost are on the list, as are ongoing construction materials shortages, commercialisation of space travel, preparing for the next pandemic and quantum computing.

The Sonar report, now in its 10th edition, also flags the challenges – and opportunities – facing insurers as crypto assets such as non-fungible tokens (NFTs) and digital tokens grow in popularity.

On the face of it, NFTs – which allow investors to buy digital representations of real assets such as art works by Picasso or real estate – should present minimal impact to the insurance industry but it is not that simple, according to the Sonar report.

“From an underwriting perspective, crypto assets may lead to unexpected losses and opportunities for new forms of insurance coverage,” the report says.

The report notes that crypto assets theft is of growing concern, with hackers reportedly making off with several billions of dollars in virtual assets last year.

“An open question for insurers in this regard is whether certain crypto assets are implicitly covered by existing property or cyber policies,” the report said. “Consequently, there could be a notable rise in claims in those lines of business."

Since the first Sonar publication came out in 2013, Swiss Re has proved eerily accurate in its predictions of the risks that could catch the world off guard if more was not invested into preparing for the worst-case scenario.

The inaugural edition of the Sonar report in 2013 flagged the threat of emerging infectious diseases and two years later warned of rising pandemic risk. In 2019 Sonar listed vaccination refusal and supply scarcity as a risk.

And climate change, which Swiss Re identified as far back as 1979, has now led to a new generation of risks such as the thawing of permafrost with potentially damaging consequences. One relates to how the thawing will affect buildings and other infrastructure assets, and the other is the prospect that the melting will release disease-carrying pathogens that have been frozen for decades.

“Climate change effects are expected to accelerate the thawing of large expanses of permafrost in numerous regions,” the Sonar repot said. “This scenario presents many challenges, including ultimately for insurers.”

The report cites a study this year that concluded infrastructure damage is already occurring and is “projected to continue, with 30–50% of critical circumpolar infrastructure thought to be at high risk by 2050”.

Despite the threats, construction continues to advance in regions where there is permafrost, including that of energy industry infrastructure exposed to risks from thawing ground.

“Widening thawing of permafrost in energy-producing regions including in Russia and Canada has the potential to further damage roads, rail tracks, pipelines and port facilities erected on permafrost, creating energy delivery supply chain disruptions,” the Sonar report said.

“These could all lead to significant claims in property insurance.”

On the ongoing shortages of raw materials, the Sonar report warns price rises arising from the situation can lead to unexpectedly severe claims, particularly in long-tail business, multi-year policies and non-proportional contract features.

“In the coming years, price increases in the construction sector could indirectly impact claims,” the report said.

The report says raw material scarcities and price pressures may see builders “cut corners”, leading to lower construction quality. “This could lead to higher claims in property and professional indemnity.”

The prospect of another pandemic cannot be ruled out, as the Sonar report urges the world to strengthen its response mechanism for when the next virus hits. It says lessons from the Covid-19 outbreak should be taken into consideration.

“The world will continue to grapple with the negative effects of the pandemic for a while yet, including the hit to general healthcare and people’s mental health, and the lingering impact of those afflicted by long covid,” the Sonar report said.

“To boost resilience against future pandemics, there needs to be renewed focus on disease and population monitoring, prevention, improving early-care services and tackling other already existing and long-standing healthcare system challenges.”

If there’s one lesson that should never be forgotten since the first Sonar report was published, it’s ignore it at your peril.

Click here to access the report.