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Emerging Risk Report_Q4 2016
January 20, 2017
XL Catlin’s Emerging Risk Task Force actively monitors a wide array of emerging risks to provide our underwriters, as well as clients, with pertinent information regarding new and existing emerging risks. This quarterly bulletin provides key highlights and developments for the emerging risks that have recently generated notable activity and media attention. Blockchain: The future of transactions?
- Blockchain is a decentralized secure ledger or database that stores and tracks information from multiple parties. More simply put, it is a database in the cloud across entities with real-time recognition.
- Originally developed as the technology underlying Bitcoin transactions, this potentially ‘disruptive technology’ is generating interest across several industries and applications, including financial institutions, public sectors / governments, real estate, intellectual property and fraud prevention.
- This emerging technology is touted as providing increased transparency, automation and reliability in the collection and management of data for key business transactions.
- Blockchain creates a permanent record of each transaction – i.e. one version of the truth that can only be changed by mutual consensus of all involved – and allows authorized parties access to that information in a ‘public’ platform. This technology does not require an intermediary to validate information between parties as each transaction is transparent.
- As with any new technology, potential risks need to be considered, including cyber security, those posed by lack of regulation and privacy concerns.
Terrorism: Domestic and homegrown concerns
- Terrorism trends show a shift in the nature of attacks – increasingly attacks are occurring at random, perpetrated by ‘lone wolf attackers’ in locations considered "soft targets" and resulting in significant loss of life and business interruption.
- Many recent attacks in the US have not met the $5M in damages to be certified under the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), creating some uncertainty in coverage for insurance contracts that cite a terrorist attack must be US government certified for coverage to apply.
- Organizations should explore how their policies would apply to terrorist events that are / are not certified under TRIPRA or other governmental terror pools.
- Organizations may be increasingly exposed to business interruption and indirect losses from terrorism, as opposed to significant property losses as in the past.
- Standalone terrorism policies, such as offered by XL Catlin, will often cover the gap where a broader definition of terrorist attack is required. Active assailant insurance could also help mitigate financial and reputational risks.
Brexit: The referendum was just the start
- The U.K. Prime Minister, Theresa May, has declared March 2017 as the latest date for starting the formal process of exiting the European Union. Once the process begins, the negotiations will take at least two years.
- Aside from a weaker pound, the U.K. economy and financial markets have not suffered much from the prospect of Brexit. However, there is a likelihood that the Brexit negotiations may be acrimonious with Prime Minister May willing to give up access to the European single market (a "hard Brexit") and the EU wanting to set the precedent that there will be a high cost of exit.
- A "hard Brexit" may hurt the U.K. economy, for which the EU is its biggest trading partner, and the U.K. may no longer be a viable location for businesses operating in the EU. With neither side looking to compromise, it could be possible that UK businesses might face years of uncertainty and headwinds to economic growth.
- There are concerns about the possibility that Brexit is merely the first step in a breakup of the EU and the common currency. A breakup would be expected to have severe global economic and financial market impacts and raise a host of complications regarding trade and even the consequences if the Euro ceases to exist. At a minimum, Europe could be an uncertain place to live and do business for many years.
Ransomware: A new kind of hostage situation
- In recent months, incidents of ransomware have increased in frequency and sophistication, becoming a major cybersecurity threat for organizations, typically targeting smaller companies, although government agencies, hospitals, law enforcement and private institutions are not immune.
- Ransomware is a type of computer virus or malware that prevents users from accessing files and data on their computer, threatening permanent encryption or deletion of the data if a ransom, typically made in bitcoin, is not paid.
Even if a ransom is paid, risks may loom. Those affected need to be concerned with notification requirements, or potential lawsuits, if PII/Personal Data is compromised, as well as network integrity as malware may linger on computers if proper action, is not taken.
Drones: Keeping an eye in the sky
- Drones — also known as unmanned aerial vehicles — are an evolving technology whose commercial uses are expected to develop further as regulatory frameworks expand their scope.
- With the increased utilization of drones, drone operators may consider purchasing insurance that would indemnify them for risks such as property damage / bodily injury liability (i.e. trespass, nuisance and privacy violation). Drones may also be exposed to potential cyber risk.
- Drones regulations continue to develop around the world. Most recently, after an extended period of regulatory uncertainty, the U.S. Federal Aviation Administration (FAA) released its final operational regulations allowing commercial drones flights across all industries, effective August 2016.
- Updated U.S. guidelines are expected to significantly reduce the barriers to entry for companies looking to use drones in their operation, and unlock drone potential across several applications such as construction management, mapping/ survey, filming/advertising, pipeline/power line patrol, search and rescue and law enforcement, among others.
Join the conversation! Read more about these and other emerging risks at XL Catlin’s Fast Fast Forward