Ahead for 2019: Five Trends in Risk Reshaping the World

By Scott G. Stephenson

ahead-for-2019_2.jpgWith the new year upon us, many executives likely are sitting at their desks trying to divine what risks and rewards the next year or two may hold. I’m no more prescient than anyone else, but I think it’s safe to say some emerging risks will enter the mainstream, and new risks will emerge—they always do.

That seemingly natural order of things presents two sorts of challenges: threats that businesses must effectively and holistically confront, mitigate, or even harness for new business opportunities as well as innovations that dare the status quo and augur disruption.

Below are five wide-ranging trends that are in risk rapidly emerging to challenge businesses and their markets:

Climate: heat, flood, fire, drought

By any measure and with unsettling evidence, climate change now carries the likelihood of affecting the most people and enterprises across the most diverse geographies, although details of those effects shift dramatically depending on where individuals live and businesses operate.

In regions such as California, drought is expected to intensify over the next century, leading to pressures on food and water supplies—and attendant resources for agriculture and firefighting. In the North Atlantic basin and similar regions, changes are anticipated in tropical cyclones and rising sea levels, which can affect the frequency and severity of coastal flooding. Now overlay that trend with an expanding human population and a growing number of coastal properties. Does it seem reasonable to expect the costs of extreme weather catastrophes to increase in proportion?

In the context of global weather patterns, meteorologists are observing volatile freeze/thaw cycles and disruptions in the polar vortex, the ribbon of cold air that undulates and can rapidly influence temperatures and weather in the United States, Canada, and other regions in the Northern Hemisphere. One result has been an increase in the incidence of “false springs,” in which earlier blooms are followed by damaging frosts, with important implications for plant life and food supply. These systemic changes suggest that winters may become shorter in some areas and potentially more intense, with heavier snowfalls, particularly in the northeastern United States.

Self-driving vehicles: Safe or just safer?

In an age of ride-sharing and tech advances such as assisted driving that promise to help curb human error on our roadways, we remain on the brink of epochal change. The expectation is that autonomous vehicles hold deep potential for reducing pollution and road congestion while increasing fuel, time, and safety efficiencies for drivers. It seems clear that autonomous or semiautonomous vehicles will help shrink driver errors, which remain the cause of 90 percent of accidents in the United States, according to the National Highway Traffic Safety Administration (NHTSA).

Yet, as autonomous tech races toward this goal, early application of these innovations reveals a more complex situation. Several high-profile accidents in 2018 have put the safety benefits of vehicles operating in autonomous mode in question. In hindsight, some accidents may show that operators in self-driving vehicles trusted too much in the tech, possibly leading to complacency and distractions. When needed at the wheel, those drivers exhibited response times that turned out to be slower than in traditional “fully human” driving situations.

And then there are sobering legal questions about liability. Among them, this million-dollar question: Who’s to blame when an autonomous or semiautonomous vehicle crashes and causes deaths, injuries, or property damage? The answer, of course, could lead to a string of responses involving the vehicle’s manufacturer, owner, or even software engineer. When the potential for cyberattacks or hacking of connected autonomous vehicles is considered, these questions only grow larger and more relevant. Deeper data needs to be collected before the risks of autonomous tech can be better assessed.

Energy markets: Winds of change

In terms of global energy markets, the winds of change are blowing—and the future may be bright. Over coming decades, energy derived from wind and sun are poised to reshape these markets, bringing potential for cleaner and more sustainable resources. Clearly, wind and solar represent a threat to oil and gas operations, and energy companies are actively rethinking their long-term strategies. The operative question remains: How fast will the shift to renewable sources unfold?

Even if every residence were roofed with solar panels and could produce its own energy, nightly energy use would still rely on the grid or alternative technologies like storage. Utility planners will be challenged to ensure that demand is met by renewable technologies around the clock. One potential tipping point for the shift could be an anticipated decline in hydrocarbon production. With new capacity needed to sustain volumes beyond 2025, wind and solar could step in to fill the vacancy if oil and gas exploration fails to deliver or economics weigh against continued development.

Momentum is also building within businesses to adapt to a rapidly changing world order. Dormant for a decade, carbon is resurfacing in boardrooms as an issue of risk management for reducing climate change. An economic downturn a decade ago spurred the majors into focusing on renewables to build diversity into portfolios to better position themselves for a radical reconfiguration in the energy landscape. Although questions remain about scale and returns, wind and solar will be increasingly important themes for growth as major energy producers plan for 2035 and beyond.

Drones: Trove of aerial data and insights

The ways that businesses and their risks are viewed have changed rapidly—and quite literally. Drones and their exciting applications for capturing both data and aerial images are now being used for agriculture, utilities, emergency services, and many industries. In fact, more than 100,000 commercial drones were registered with the Federal Aviation Administration (FAA) by the close of 2017.

In the aftermath of recent hurricanes, wildfires, and floods in the U.S. and elsewhere, drones were flown to search for survivors and to help assess damages to roads, homes, and commercial structures. Industries such as construction and mining have already incorporated drones into their workflows, and some insurers are tapping drones to determine roof age and integrity when inspecting properties.

While drone capabilities are often breathtaking, potential exists for a significant downside. Commercial flights may carry exposures for property damage and liability, and some homeowners consider drone operations to be violations of their personal space. As drone tech advances, the FAA’s regulatory framework is expected to keep pace. Current FAA regulations require operators to maintain a visual line of sight with their unmanned aircraft. But if regulators approve beyond-the-line-of-sight flights, the possibility of new exposures will multiply. As with so many new technologies, a leading concern continues to be the hacking of drones and criminal misuse or cyberattacks, with nightmare scenarios for damages.

IoT: It’s all connected

We may not always be aware of them, but the ties that bind the world are increasingly in synch. The smartphone that connects its owner to a home’s thermostat is also a link to the owner’s vehicle. The resulting efficiencies have been world-changing, and yet, so are the exposures. In this bracing new environment—also known as the Internet of Things (IoT)—vast volumes of data are generated and stored.

One concern has been that IoT devices and networks remain particularly vulnerable to cyberattacks, with a single breach holding potential for a domino effect in which larger systems may be compromised. In that situation, cyber criminals could misuse hacked devices to launch “botnets” and a cascading destruction that could include a consumer’s car, credit, home, and financial records and even lead to personal injury.

On the plus side, data permissibly derived from IoT is often used legally and incisively and can promote greater safety, compliance, and efficiency in operating commercial transportation fleets, for example. Such data can be a tool for mitigating risks as well as to signal the need for maintenance of vehicles and industrial machinery, which can be remotely monitored against potential failures.

With one estimate predicting a six-fold expansion of IoT devices by 2025 to 55 billion (up from 9 billion connected devices in 2017), there’s likely to be significant interest and mainstream growth in this sector. IoT is not a matter of if, but when. In the case of connected tech and its expanding reach, the time appears to be now.

Scott G. Stephenson is chairman and chief executive officer of Verisk (Nasdaq:VRSK).