Future risks take shape in 2011 - 360 News - Lloyd's

Risk practitioners have some truly 21st century exposures to grapple with in the coming year.

Space weather, cyber risk and failing critical infrastructure are among the risks that could cause big problems for consumers, businesses and their insurers in 2011.

The phenomenon of space weather is one of the most difficult to quantify and yet potentially serious sources of loss and disruption for business, according to a Lloyd’s 360 Risk Insight report.

The Lloyd’s report, “Space weather and its impact on Earth: Implications for business”, says that businesses should be looking at ways to assess and mitigate space weather risks this year because the 11-year solar cycle is expected to peak in 2012/13.

Turbulent space weather created by solar phenomena such as coronal mass ejections, solar radiation and magnetic storms could have wide ranging impacts, experts believe.

Aircraft communication and navigational systems might stop working, satellite and GPS systems could malfunction, power grids could collapse.

Space weather warning

Scientists know a lot about the possible causes and effects of solar weather from previous cycles. Established infrastructure that we take for granted, such as rail networks, telephone systems, pipelines and electric power grids have all been seriously disrupted by space weather in the past.

But the economic fall-out that could result from the increasingly active solar season is far less certain. That’s because our dependency on wi-fi and internet technology is so much greater than before.

“There is growing concern that the coming solar maximum will expose problems in the many wireless systems that have grown in popularity during the quiet solar conditions that have prevailed over recent years,” the Lloyd’s report warns.

Trouble in cyber space

Another important technology related exposure tipped to continue to grow strongly in 2011 is cyber risk. A new 360 Risk Insight digital risk report produced by Lloyd’s in co-operation with HP Labs, “Managing Digital Risk: trends issues and implications for businesses”, warns that computer attacks are becoming more sophisticated and more widely targeted.

Companies have a multitude of reasons for pushing digital risk up the board room agenda in 2011, the report says. Phishing, viruses, malware, worms and hacking are increasingly disrupting operations in businesses ranging from supermarkets and banks to nuclear facilities.

“Risk managers need to pay attention to both future threats and future uses of technology, moving beyond today’s largely reactive approaches,” the Lloyd’s report advises.

The report says companies are increasingly vulnerable to system failures, data losses and cyber attacks, creating serious operational, financial, intellectual property, legal, regulatory and reputational risks.

Condition critical

Neil Smith, Lloyd’s thought leadership manager, says that outer space and cyber space represent potentially serious and somewhat difficult to grasp risks for businesses and society in the coming year and beyond. And he adds that there are also tangible problems down on the ground that require urgent attention.

One of these is the increasing strain being placed on critical infrastructure across the globe.

“The critical infrastructure of many economies is under increasing stress due to a lack of long-term investment and government cutbacks following recession combined with trends such as climate change and population growth,” Smith says. “The scale of loss and disruption that can result from the failure of critical infrastructure could be immense.”

Underinvestment by governments around the world in agriculture, energy, water, transport, and information technology infrastructure is storing up problems, Smith believes.