HOW TO UNDERSTAND EMERGING RISKS / PROJECT SYNDICATE

How to Understand Emerging Risks

Understanding and anticipating risks is crucial to protecting society from the unpredictable. But the nature of risk is evolving at an unprecedented pace, and the processes and assumptions that guide insurers and their clients in managing uncertainty must be adjusted accordingly.

Françoise Gilles

PARIS—Across centuries of experience and data collection, the insurance industry has developed an unmatched understanding of risk. 

It is the raw material that insurers analyze, price, and manage to help individuals and organizations navigate life’s many uncertainties. 

Understanding and anticipating risks, therefore, is crucial to remaining relevant, resilient, and capable of fulfilling insurers’ core mission: protecting society from the unpredictable.

But the nature of risk is changing at an unprecedented pace, owing to rapid societal, technological, environmental, and political changes. 

That means that it is increasingly important to understand “emerging risks”—those that are either new or already known but difficult to quantify in terms of frequency and potential losses.

Emerging risks are often interconnected and shaped by innovation, social changes, and natural hazards. 

For example, a new technology may lead to sweeping regulatory responses, workforce challenges, or reputational harm for some firms. 

Similarly, environmental events can cascade into infrastructure failures, health crises, and financial losses, creating ripple effects that threaten stability across sectors. 

Insurers are no longer just managing known risks; they also must anticipate and prepare for looming risks that are not yet fully known or understood.

But sometimes, emerging risks are older risks that have taken a new form or are appearing on a different scale. 

For example, in the past, heatwaves were treated as environmental risks with implications that were largely thought to be confined to agriculture and some physical infrastructure. 

But now, heatwaves’ known effects also include mental-health stresses, workplace productivity losses, and strains on digital infrastructure and energy systems.

Another feature of emerging risk is fundamental uncertainty. 

Whereas traditional risk management relies heavily on historical data and statistical models to assess “known knowns,” emerging risks often fall into the category of “known unknowns” or even “unknown unknowns” for which historical data are incomplete or non-existent.

For these risks, the objective must shift from prediction to preparedness. 

Horizon scanning, expert consultations, scenario analysis, and other forecasting tools can help detect early signals of emerging risks, identify overlooked vulnerabilities, and support informed decision-making before damages mount.

Thus, emerging-risk management typically follows a structured pathway from detection to action. Detection aims to identify signals—including research breakthroughs, regulatory developments, technological innovations, and societal trends—across multiple domains. 

Then comes assessment, which seeks to understand the relevance, uncertainties, and potential effects of the detected signals. 

At this stage, organizations evaluate how risks might affect operations, reputation, and financial stability.

The next stage is prioritization, where decision-makers try to ensure that their finite resources are allocated to the most strategically significant risks. 

Given the vast number of emerging risks, organizations must determine which require deeper analysis or immediate response.  

Finally, effective risk management must translate insights into concrete action, which includes everything from strengthening monitoring and raising internal awareness to risk avoidance or mitigation and identifying business opportunities.

Emerging risks affect insurers in two related ways. 

Internally, they bear on workforce dynamics, skills requirements, operational continuity, and employee well-being. 

Externally, they shape clients’ evolving risk exposures, new protection needs, and expectations toward insurers. 

Understanding this duality helps insurers position themselves not only as risk carriers but as active partners in managing uncertainty. 

According to the AXA 2025 Future Risks Report, 72% of survey respondents worldwide believe that insurers will play an increasingly vital role in protecting against emerging risks.

Chief among current emerging risks is AI, which could simultaneously transform operations, create new vulnerabilities, and reshape societal expectations of insurers. 

The technology is evolving rapidly, scaling quickly, and disrupting everything from cybersecurity and data privacy to decision-making processes, reputational risk management, and broader issues like misinformation and social fragmentation.

Internally, AI can improve operational efficiency and customer engagement, but it also creates vulnerabilities, such as an overreliance on automated decisions, trust issues, and accountability gaps. 

Externally, clients face exposure to liability risks, privacy breaches, and AI-enabled fraud. 

The uncertain long-term societal and ethical implications add complexity, requiring detailed scenario analysis to understand potential future risks and benefits.

But AI also offers significant opportunities. 

It can enhance risk assessments; support predictive capabilities; strengthen the work of actuaries, underwriters, and claims managers; deliver hyper-personalized customer engagement; and improve productivity.

For now, organizations will give immediate attention to risks related to data privacy and regulatory compliance, since these could threaten reputational and legal harm. 

Risks from operational overdependence would then fall into the bucket of medium-term concerns. 

But these cut both ways, because neglecting AI’s strategic potential—failing to harness it for efficiency, better risk assessment, and personalized services—would result in missed opportunities and a loss of competitiveness.

Any AI action plan, therefore, must strike a balance between managing risks and seizing opportunities. 

It must strengthen governance frameworks to ensure transparency, accountability, and ethical use; and it must leverage AI to enhance risk assessment, operational efficiency, and customer experience.

We are not destined to be passive witnesses to the irreversible effects of natural forces or human choices. 

By understanding emerging risks—and emerging opportunities—the insurance industry can continue to fulfill its crucial economic role and confidently navigate the future.

Françoise Gilles is AXA Group Chief Risk Officer.