Top Global Risks To Be Examined At WEF In Davos

NU Online News Service, Jan. 26, 11:48 a.m. EST

Macro-economic imbalances, illegal economy and unsustainable pressure on resources are three global risks that will be in focus at the upcoming World Economic Forum (WEF) meeting in Davos, Switzerland later this week.

The meeting follows a WEF study, “Global Risks 2011, Sixth Edition,” which concluded that the financial crisis has reduced global economic resilience while increasing geopolitical tension and suggested that insurers could help address emerging global risks.

In anticipation of the Davos meeting, Kurt Karl, chief U.S. economist at Swiss Re in New York, noted three important risks recognized by the WEF which will be discussed:

• Macro-economic imbalances—a cluster of economic risks creating global disparity, arising from tension between the increasing wealth and influence of emerging economies and high levels of debt in advanced economies.
• Illegal economy—illustrated by recent mafia arrests and increasing Somalia pirate acts. In 2009 the value of illicit trade around the globe was estimated at $1.3 trillion, Mr. Karl said.
• Unsustainable pressure on resources—these include water, food and supplies.

Much of the risk, Mr. Karl said, is weather-related, and he noted that insurance such as micro-insurance can help. In particular, micro-insurance can help small farmers in emerging markets in case of a drought, for example.

The market for micro-insurance in 10 years is projected to be up to $50 billion, he added, which can make a “huge difference. A small amount of money at the right time.”

Five additional risks that bear watching, Mr. Karl said, are:

• Cyber security—issues ranging from the growing trend of cyber theft to the little-understood possibility of cyber warfare.
• Demographic challenges—high population growth is a general issue, he said, noting that the insurance industry has products such as life insurance and other products to help an aging population.
• Resource security issues, which cause extreme volatility and sustained increases over the long term in energy and commodity prices if supply is no longer able to keep up with demand.
• Retrenchment from globalization—trying to avoid, politically, companies setting up barriers to trade. This is coming, he said, not only from emerging markets but more and more from developed economies faced with rising unemployment.
• Weapons of mass destruction—especially the possibility of renewed proliferation between countries.

A large and important aspect of what happens during the World Economic Forum, he said, is raising awareness and making connections.

“For many of these risks, one of the areas of real value is private/public partnerships,” he said. “You can't develop a micro-insurance line if you don't have the cooperation of the government and the regulatory authority.”