Malicious attacks on artificial intelligence systems and the polarisation of geopolitical alliances have been identified as the emerging risks with the highest impacts on re/insurers, according to new research. 

Machine learning and AI are “driving the next wave of technological advances”, said Swiss Re in its latest ‘Sonar’ report, which identifies 17 new risks and trends across technological, economic, social and environmental areas.

“However, as AI use increases, so do the possible risks,” said the firm. 

“Professional hackers can not only trick models into making mistakes or leaking information, they can also harm model performance by corrupting training data or stealing and extracting machine learning models.”

The business lines that are likely to be affected by AI hacks are casualty, specialty, life and health, operations, and assets and financial markets. 

Beyond cyber insurance, Swiss Re explained there are increasing opportunities for fraud, as well as potential claims in professional indemnity and errors and omissions lines for machine learning failures and data breaches. 

Model-stealing could lead to intellectual property loss, said the company, and beyond that, data leakage or non-compliance with current and upcoming data and AI regulation might trigger fines. 

“Furthermore, adversarial machine learning attacks leaking to the media, however small the impact might be, could directly impact the reputation of insurers and/or their assets,” said Swiss Re in the report. 

Another risk considered to have a ‘high impact’ on re/insurers is when geopolitics polarises business, which “could lead to mutually exclusive markets and impede global re/insurance businesses”.

All business lines are impacted by this risk. As well as the aforementioned lines, this includes property. 

Global re/insurers rely on the ability to move capital across borders to keep the cost of capital low, said the report, but there has been an increase in trade barriers since the global financial crisis of 2008-09. 

In addition, governments have made “defensive use of financial and technological dependencies” to weaken competitors. 

“An example are protectionist US policies like reshoring of chip manufacturing facilities to prevent China from gaining a decisive technological and strategic edge.”

Swiss Re noted three key developments as a result of hardening lines between economic blocs: the growing popularity of economic sanctions in the case of conflict; political realignment of the traditional left-right divide to nationalists and globalists; and the trend of “friend-shoring”, whereby firms relocate production operations to states with aligned values rather than set up in the lowest-cost locations. 

“All three could impede the free movement of capital that allows businesses to operate ‘normally’,” said the Swiss reinsurer.

A more futuristic but potentially significant risk is solar radiation management technology, a process used to cool the Earth by artificially reflecting more of the sun's energy into space. 

Potentially affected business lines highlighted by the report are property and casualty lines. 

Despite its ‘medium’ impact status, Swiss Re said the techniques used, such as injecting highly reflective particles into the atmosphere to reflect sunlight back into space, “could open up a whole new set of environmental risks and the potential for international conflicts”. 

The firm explained that if SRM is implemented and then suddenly terminated, the result could be fast temperature increases, leading to extreme weather events including flood, drought and windstorms, triggering property losses and other claims.

The release of compounds into the atmosphere impacts many countries, Swiss Re added, and the nation which deploys SRM may not be the one that suffers harmful side effects.

“The question would be how to compensate those experiencing negative effects,” said the company. 

Swiss Re is hosting a hybrid event on 27 June a 17:00 CEST to mark the release of the Sonar 2023 report on emerging risks.