10 Emerging Risks to Watch

By and | February 7, 2022

Insurance Journal examined industries experiencing changes and a few challenges due to the COVID-19 pandemic, economic forces and tough insurance market conditions in 2021. Here are 10 industry sectors that could see new and emerging risks in 2022 and beyond.

Cyber

Like the risk itself, the cyber insurance market is constantly changing and keeping carriers on their toes thanks to new threats, exposures and government regulations.

A market that was once brimming with capacity and soft rates is now experiencing tightening capacity and rate increases. Willis Towers Watson’s “Insurance Market Realities 2021 Spring Update” released in April noted average rates increases had jumped up to 25% to 50% from the 10% to 20% it reported in its previous update.

Cyber experts cite the escalating frequency and severity of ransomware attacks as the primary driving force behind the current market hardening.

According to a recent report from cyber analytics company CyberCube, global proliferation of ransomware is resulting in cyber claims outpacing premiums, and threatening insurer and reinsurer profitability. CyberCube said emerging threats associated with ransomware attacks, such as ransomware-as-a-service (Raas), have matured into “systemic issues.”

“It is probably one of the bigger challenges that is not going to be solved in 2022,” said Christopher Grimes, a director in Fitch Ratings’ North American insurance rating group. “Experts around the world are trying their best to stay ahead, but it’s running uphill in this battle.”

U.S. public finance (PF) entities, which have been hit particularly hard by ransomware attacks, are facing higher insurance costs and challenges in acquiring coverage, Fitch Ratings reported in November.

“With some ransomware demands climbing to six and seven digits, PF entities are getting priced out of quality and comprehensive commercial cyber insurance policies,” Fitch said.

Claims payouts accounted for about 73% of the premiums collected by insurers in 2020, up from 34% in 2018, Fitch said.

Darren Thomas, CyberCube’s head of Cyber Security Strategy, warned that 2022 will be another active year for the global insurance industry.

“New levels of cooperation between nation state actors and criminal gangs will likely be emerging, and new thresholds of acceptable tolerances will be tested at the nation level,” he said.

The healthcare, education, manufacturing and utility industries will be the prime targets of cyber criminals in 2022, CyberCube said, with ransomware threat actors likely to target software supply chains.

Based on data from Microsoft, CyberCube said Russia was responsible for 58% of state cyber attacks in the last year, followed by North Korea at 23%, Iran at 11% and China at 8%.

Political Risk

Supply chain disruptions, economic uncertainty, and access to proper healthcare and vaccines caused by the COVID-19 pandemic has led to unprecedented levels of global instability. But insurance experts say emerging technology and climate change are other factors that could threaten the political risk landscape.

The Willis Towers Watson’s “Political Risk Index Winter Update,” released in December, noted social media as a key driver of political risk because of its ability to amplify disruptive events stemming from broader political changes.

“It is possible that social media, which is in part a tool to forming new social groups, has made activist politics dramatically more effective,” the report states. “It is also possible that social media has empowered social groups that traditionally avoided political activism because of social discrimination, geographical dispersion, or a lack of political education.”

The use of social media technology to organize large-scale demonstrations and protest movements is also leading to an increase in property damage losses, the report states. In a December webinar on the report, Samuel Wilkin, director of political risk analytics, financial solutions at WTW, said “hashtag” protests in the U.S. increased civil disorder losses from an average of less than $100 million a year for the past 70 years to $2 billion in the last two years.

“Hashtag-enabled protest movements have evolved with extraordinary speed and scale, leading to property damage at a level that we don’t usually associate with social unrest,” Wilkin said.

Also being considered is the effect climate change could have on global security. Larger and more frequent natural disasters will displace vulnerable populations and disrupt economies, which could lead to more political instability and violence, experts say.

Late last year, the National Consortium for the Study of Terrorism and Responses to Terrorism (START) formed a global partnership with the International Forum of Terrorism Risk (Re)Insurance (IIFTRIP) and Pools Re Solution to study the impact of climate change on terrorism.

The entities plan to research and produce a series of reports examining “current and contemporary threats and global regional outlooks,” and will present their findings at the next IIFTRIP meeting in May.

“This study represents a critical and pragmatic contribution focused on implications for human and economic security,” Bill Braniff, START director, said in a statement. “In truth, we are already observing violence, criminality, and terrorism brought about directly and indirectly by climate change; this study will therefore serve as a call to action on an urgent issue.”

Telemedicine

The COVID-19 pandemic accelerated a trend in healthcare toward “virtual” doctor visits, also known as telemedicine, as healthcare entities were forced to scale down in-office appointments and procedures to free up resources and limit virus exposure.

A September report by Amwins said the global telemedicine market is expected to grow to $52.3 billion this year, with the ongoing pandemic being a major driver of that growth.

RPS Insurance Brokers’ “2022 U.S. Healthcare Market Outlook” cited a four-figure increase in the number of telemedicine visits during the pandemic, noting the practice is being used more frequently as a diagnostic tool and in determining the need for in-person office visits.

The pandemic also fueled private equity investments in telehealth, RPS said.

But while telemedicine can be more convenient for both patients and providers, Amwins warned healthcare providers need to be adequately protected against exposures like cyberattacks. They also should ensure they are complying with state licensing requirements, and federal and state patient privacy laws, including HIPAA.

According to RPS, medical professional liability claims related to telemedicine have been “historically low,” but the broker expects growth in the segment will lead to more incidents.

“It is inevitable that claims will rise because MPL claims have a positive correlation to patient encounters,” the report states.

RPS said rates and capacity were tightening in the medical professional liability segment before COVID-19 began because of rising loss costs in the overall healthcare segment. What happens with virus-related medical malpractice claims is the “great unknown” for underwriters, the report states.

It’s that unknown that is likely to lure carriers toward writing telehealth providers instead of other healthcare entities, and the booming sector will no doubt need help from agents and brokers understanding their exposures.

Beazley, which first launched a “Virtual Health” policy for the telehealth sector in 2017, said results of a survey it commissioned of more than 350 telehealth and telemedicine company executives showed one-third of the respondents “didn’t know what types of risk they need to be covered for, while 36% have struggled to find the right insurance.”

Last summer, Beazley enhanced its Virtual Health policy in response to increased demand for the product. The enhancements address telehealth provider coverage gaps, Beazley said, including adding affirmative bodily injury coverage as standard to its core policy lines and giving telehealth entities more choice over first and third-party cyber coverage and risk services.

Product Liability

The pandemic has dramatically increased the number of companies manufacturing, distributing and selling COVID-19 products, which has in turn increased the demand for life sciences insurance coverage, according to Willis Towers Watson’s “Insurance Marketplace Realities 2021 Spring Update.”

The WTW report said underwriters in the life sciences space have been “inundated” with policy submissions. And while capacity hasn’t changed, carriers are being more selective about which risks they will entertain.

“Those insureds with new COVID-19 products who are already in the life sciences space are viewed more favorably by underwriters than new entrants, given the likelihood of greater experience in dealing with the FDA,” WTW said.

Many countries, including the U.S., temporarily authorized or lifted regulations allowing non-life science companies to produce and market items such as ventilators, personal protective equipment and COVID-19 tests as these items were in short supply at the start of the pandemic, Chubb said in a report issued last year.

However, Chubb’s “Making medical devices during a pandemic” report noted that companies that stepped up to produce this equipment, such as car or alcohol manufacturers, may not have been fully aware of their legal risk and responsibility, including the required ongoing maintenance and lifetime monitoring of the products, Chubb said.

“Some companies were perhaps a little naive as to what they were getting into,” says Alex Forrest, head of Life Sciences, Overseas General at Chubb. “They were running towards helping the war effort without really contemplating the potential consequences for their firms if they got things wrong.”

The complex and urgent nature of the pandemic created new product liability exposures for established medical device manufacturers as well, Chubb said, as products and equipment were modified or used in ways that they were not intended, also known as “off-label” use.

“You don’t really get any market surveillance in a pandemic. If you’re a manufacturer, good luck trying to ring up a hospital to understand what they’re doing with your products. They’re not interested in speaking to you at that point,” said Forrest.

Chubb noted the significant strain on the global supply chain will put more pressure on life science manufacturers.

“Even when COVID-19 eventually goes into retreat, the industry will still have its work cut out ensuring the equipment built during an emergency is not used when healthcare systems resume normal service,” Chubb said.

Mobility & Transport

Transportation is yet another segment being disrupted by the pandemic and technology, as people shift away from traditional vehicles to new modes of transport, such as driverless cars or e-scooters.

The emergence of new digital companies that provide “wheel-based” services has accelerated the demand and growth of gig workers during the pandemic, Marsh said in a recent report titled “Mobility in a post-pandemic world: From evolution to revolution.”

Marsh said these trends will rapidly evolve for at least the next year, but insurance products designed to protect the income of these workers are lagging behind.

“If insurance can keep pace and evolve with this accelerating mobility shift, it can empower growth and possibility in this sector for many years to come,” said James Rose, head of Marsh’s U.S. Sharing Economy and Mobility Center of Excellence.

Overall, challenges in the transportation sector are being exacerbated by the pandemic, according to Aon’s 2021 Global Risk Survey of 2,300 risk managers. Supply chain disruptions, concerns about cyberattacks and data breaches, and business interruption were identified as the top three risks for the segment.

Allianz’s 2022 Risk Barometer report, which surveyed 2,650 risk management experts from small to medium-sized businesses in 89 countries, found 45% believed recent supply chain disruptions had had the biggest impact on their sector. And 30% of respondents are most concerned about their business being interrupted by major transportation/shipping delays.

Aon said in the next three years, an aging workforce and the increasing risks “associated with the industry’s dependence on others — for vessels, ports, logistics hubs, and more” will make supply chains more vulnerable.

The Aon report also warned that greater focus by investors, customers and regulators on mitigating climate change will put more pressure on the transportation industry. “Companies need to understand what’s at stake due to climate change and set up a road map for decarbonization to comply with upcoming regulations,” the Aon report says.

Supply chain and business interruptions caused by climate hazards like severe weather could also lead to more disruption and higher costs for the transportation industry.

Entertainment

The massive number of event cancellations in 2020 led to major losses for insurers and rates have risen across the board. But even as the entertainment industry continues to see a comeback, a shortage of experienced workers for live events has increased the potential for accidents and cancellations, according to a recent report by HUB International.

“Even though demand has picked up for skilled labor in live events, there are not enough people to fill positions, and those who come back to the industry are rusty. Skills may have eroded from the time off — retraining crews can help ensure construction safety, whether that’s for building sets at a small venue or giant stages for music tours,” said HUB in its 2022 Entertainment Industry Outlook report.

Nosediving revenues led to furloughs, layoffs and an unemployment rate of 6.4% in December 2020, compared with 1.9% a year earlier. The concert industry alone took $30 billion in losses.

HUB says 2022 will see escalating rates, less capacity and long approval periods in the live event space. “At a minimum, event cancellation coverage premiums will increase 20% but probably a lot more. Umbrella or excess liability insurance premiums are likely to have similar increases.”

Other coverages for entertainment and live events are also rising, according to HUB. “Property insurance will rise as much as 20% for properties in catastrophe-prone areas, and cyber insurance premiums are likely to rise 20% or more, as increased online sales of merchandise and ticket sales has created more exposure.”

The film industry has also taken a beating but brokers are optimistic.

While entertainment insurance is tough, there is plenty of capacity for the sector, maintains David S. Nikolai, president of EverSports & Entertainment Insurance Inc., an Everest Re Group company. “The markets have reduced the limits on an individual basis, but the capacity has not completely left the building,” Nikolai said. He said the biggest change has been exclusions for communicable disease.

Commercial Real Estate

Despite suffering setbacks during the pandemic in 2020 and 2021, the commercial real estate industry overall has a positive outlook heading into 2022. According to JP Morgan’s 2022 Commercial Real Estate Forecast, the year overall looks positive, with retail and multifamily classes of business rebounding and industrial classes continuing to thrive.

Multifamily and retail real estate markets have largely recovered from the early days of the pandemic. “Multifamily vacancies hit 4.7% in the third quarter of 2021, reverting back to levels seen at the end of 2019,” said Victor Calanog, head of CRE Economics for Moody’s Analytics.

However, the insurance market for some multifamily classes remains a challenge. In the shadow of the tragic Champlain Towers collapse and several natural disasters, residential property risk increased, HUB stated in a recent report on the real estate sector. “As a result, real estate owners with multi-family high-rises in their portfolio must layer policies to secure even baseline coverage needs.”

The future of office real estate is still largely unknown. “Across industries, however, employers are embracing hybrid work,” the JP Morgan report stated. “Even tech giants, many of which were committed to 100% remote work, are leasing office properties in major U.S. cities.”

HUB says retail has rebounded somewhat, but the transformation of the sector, including innovative shifts such as repurposing empty storefronts or turning vacant shopping malls into warehouses, will accelerate this trend.

The liability market for real estate is challenged, as well.

“Excess liability for real estate companies remains challenged due to higher-than-expected settlements resulting from problematic claims,” USI Insurance Services’ 2022 Commercial Property & Casualty Market Outlook stated. “Many umbrella carriers refuse to offer capacity for certain real estate classes, due to crime-related claims, as well as geographies that are quick to file lawsuits against property owners and managers.”

USI says that both cyber and excess liability coverage lines will not see any relief in the real estate arena in 2022.

Management Liability

The overall public company D&O marketplace continued to stabilize due to a significant decrease in federal securities class actions (SCAs) in 2021 and the emergence of new capacity targeting excess layers of coverage, said USI Services in its recent 2022 Commercial Property & Casualty Market Outlook. With some exceptions, moderate increases are now the norm with premium and retention increases moderating for private company/not-for-profit (NFP) D&O as well.

While pricing challenges remain for many D&O buyers, new capacity and new competition are finally on the way with a dozen new entrants to the D&O insurance market, according to Woodruff Sawyer’s 2022 D&O Looking Ahead Guide.

One area seeing turmoil is the D&O insurance market for SPACs. “Unprecedented demand for D&O insurance combined with a surge in SPAC litigation and a surfeit of SPACs still looking to identify a merger partner have led to D&O premium increases of four to five times over 2020,” according to Woodruff Sawyer’s Guide, which suggests this trend will last through 2022.

“Risk in the D&O market remains elevated with regulatory scrutiny on the rise and carriers continuing to seek increases on rates and retentions, although the increases are decelerating and we are starting to see a shift away from the hard market,” stated Carolyn Polikoff, Woodruff Sawyer’s National Commercial Lines Practice leader, in the report. “Given all that is going on, there is more pressure than ever to determine what is the right amount of D&O insurance to purchase.”

Employer Liability

For employment practices liability, some buyers — those without poor claims history or major changes in exposure due to acquisitions or layoffs — have been able to renew their programs with single-digit increases. That’s good news for employers.

“In 2021, we continued to see premium and retention increases for Employment Practices Liability (EPL) insurance in the range of 10%-25%,” wrote Emily Loupee, area senior vice president, Gallagher, in a January “Employment Practices Liability Market Condition” report. “Early signs are showing that we may have reached an inflection point in this trend and that we can expect a flat to 10% increase for EPL renewals in 2022,” she said.

Loupee wrote that the most significant cost drivers for EPL have been increased frequency and severity of lawsuits related to social movements and related social inflation. Also, COVID-19 has introduced a new category of EPL claims. According to Jackson Lewis, as of Nov. 24, 2021, almost 4,000 COVID-19-related EPL complaints have been filed.

Another situation to watch: “In the face of resistance to vaccine mandates in the U.S., there may be an increase in retaliation and discrimination claims under the Americans with Disabilities Act and Civil Rights Act of 1964 (specifically, for religious discrimination),” USI stated in its recent 2022 Commercial Property & Casualty Market Outlook.

But overall, USI agreed, the EPLI insurance market is poised for continued moderation in 2022. “Insurers were willing to compete on EPL renewals if the insured’s business conditions were improving, an effective return-to-work transition plan existed, and employment policies were keeping up with newer areas of exposure such as gender identity discrimination, medical marijuana uses, and claims regarding social media use.”

Nonprofits

Already often overstretched on resources, nonprofit organizations have had to learn to do more with less during the COVID-19 pandemic, which has brought a range of new risks and challenges to the nonprofit sector. Many nonprofits adapted to virtual models

and implemented creative solutions to combat the challenges they faced with the pandemic. In the past it’s been an industry that relied on in-person fundraising events and volunteer activities.

The nonprofit workforce also took a significant hit due to the pandemic but improved with an average of 44,624 jobs recovered per month during 2021, according to PNC Insights. Researchers estimate the sector may not see a full return to pre-pandemic workforce levels until Fall 2022.

Another area of risk is liability, wrote Eric Schall, vice president and claims counsel for Chubb Executive Risk, in a post for the Nonprofit Risk Management Center. According to Schall, donors sometimes sue nonprofit organizations over how the nonprofits use their funds. “In today’s increasingly litigious society, nonprofits have to carefully account for how they spend their funds, especially if private donations make up a significant portion of their revenue,” he wrote.

When it comes to purchasing insurance, nonprofit organizations rely on their insurance partners to guide them through though market challenges.

Price is a key concern, according to a research report published last fall, titled “Challenges, Opportunities, and Insurance Buying Trends in the Nonprofit Industry — 2021.” The report by Philadelphia Insurance Companies, in partnership with NonProfit PRO and NAPCO Research, analyzed top priorities and insurance buying behaviors of nonprofits.

The nonprofits responding reported that some

47% consider the price of insurance a significant barrier for their organization — that’s up from 13% in the 2019 survey. Some 20% reported significant challenges in understanding the difference between insurance policies — up from 15% in 2019. And 20% reported that responsiveness of sales reps/brokers is also a significant challenge — up from 8% in 2019.

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Insurance Journal West February 7, 2022
February 7, 2022
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