The coronavirus outbreak is amplifying some emerging risks and has illustrated the importance of not relying on historical data to prepare for future threats, Swiss Re says in its annual Sonar report.

Emerging issues identified in the report include challenges for the millennial generation following lockdowns, pressures on global pharmaceutical supply chains, and risks from the accelerated uptake of new technologies.

“After this global crisis, which shows the importance of forward-looking risk management, society will need to adapt to many changes, some of which will continue to linger on,” Swiss Re Chief Risk Officer Patrick Raaflaub says.

The report, which has been published each year since 2013, highlights 14 emerging risk themes, grouped by potential impact, timeframe and category, and spotlights four longer-term trends.

Intergenerational imbalances are ranked as high risk within three years, with millennials hard-hit by the pandemic just as they are building their personal and professional lives and would typically require more insurance.

“Companies will need to find ways of distributing insurance at significantly lower prices while also ensuring adequate pricing of risks to be able to pay for future claims,” Swiss Re says.

The COVID-19 outbreak has highlighted the reliance on international supply chains for pharmaceuticals, and the concentration of manufacturing in China and India.

Substituting alternative medication in case of disruptions raises risks for medical malpractice or professional indemnity claims, or the chance of product recalls if replacement drugs don’t meet standards.

Increased cyber risks may come from “edge computing”, involving devices at the end of a network such as with the Internet of Things, which allows more points for disruption while increasing the potential for failures.

“Any device that remains connected to a network beyond its projected life span and is no longer updated with adequate security patches invites attackers,” the report says.

Software that has to be continually updated also has implications for product liability as more items become digitised and repair and modification providers expand beyond original suppliers.

Swiss Re highlights that the COVID-19 crisis shouldn’t overshadow the need to move to a low-carbon future, presenting opportunities for the insurance industry and new risks.

Carbon removal solutions will generate demand for traditional engineering and property insurance covers, which would include new types of risks, while some technologies are still at the prototype stage.

“Innovative insurance could facilitate continued growth of the carbon removal industry,” Swiss Re says. “The front-runners among insurers will profit from the experience gathered over the next decade.”

Technological and natural environment risks include challenges from the combustibility of lithium-ion batteries and hydrogen fuel applications.

“Deepfake” media formats that use artificial intelligence to fabricate digital content that hijack and misuse a person’s identify could also affect insurance operations.

Swiss Re’s first Sonar edition seven years ago profiled emerging infectious diseases as a risk, while the 2017 report said “the question isn’t whether another deadly infectious disease will appear but when and how well society is prepared to cope with it”.

Mr Raaflaub says the impact on economies, financial markets and societies from containment measures imposed to halt the spread of COVID-19 has probably been underestimated, but pandemic threat has long been on the radar of the insurance industry.

“The past months have shown the utmost importance of forward-looking risk management,” Mr Raaflaub says. “Risk awareness is ever more important as a prerequisite.”

The report is available here.