Breaking the ice on emerging risks

First, we heard emergency sirens. Then came the biting smell of burning chemicals.

My home country, Switzerland, is known for its Alpine landscapes, but it's also the site of one of Europe's worst environmental disasters: the Sandoz fire and chemical spill at the Rhine River industrial zone of Schweizerhalle, early on 1 November 1986.  As a young college student, I remember that morning vividly. I was visiting friends in nearby Basel, a few short kilometres from where the warehouse exploded into flames and sent plumes of smoke over the region.

As hundreds of firefighters battled the blaze for hours, tonnes of toxic foam and water flowed via a rainwater drainage system into the Rhine, turning the river red and killing aquatic life for hundreds of kilometres downstream. An incomplete understanding of risks of storing chemicals so near a major waterway, insufficient prevention, poor communication and failed containment conspired to cause a major crisis that engulfed Switzerland, France, Germany and the Netherlands.

It was an international catastrophe, but Schweizerhalle also left a very personal mark on those who experienced it, including me.  

As Swiss Re now publishes its latest SONAR, the 12th edition of our annual report focused on emerging risks, I mention Schweizerhalle because even 38 years later, the disaster remains illustrative of the consequences of neglecting risks whose inevitable interactions often produce chain reactions during a fast-moving emergency, amplifying their destructive potential.

Today, as Chief Risk Officer at Swiss Re, I still see Schweizerhalle as a cautionary reminder: Risks like those overlooked 38 years ago must be identified at the earliest juncture possible, so they can be discussed, understood and mitigated to help ensure that complex and essential modern endeavours can proceed safely and confidently.

This is the spirit of SONAR.

This year, our report addresses 13 emerging risk themes and three additional topics that we call "Trend spotlights," to initiate and enrich the conversation around threats our experts have identified either on, or just over, the broad risk horizon.

While many of us recognise climate risks represent a profound threat to societies, SONAR takes a deeper look at some less-considered impacts of a warming planet. With rising frequency and intensity of climate-related hazards, for instance, there will be cascading effects on systems including infrastructure that delivers energy and water or makes transportation possible.

But climate change doesn't merely necessitate rethinking how to make our means of delivering essential resources more resilient, it's an evolving threat to international security. Food insecurity arising from weather catastrophes is increasingly seen as a global challenge for developing and developed countries alike, a destabilising force restraining economic, social, and political progress while supercharging human migration, within and across borders.  

Supply chain vulnerabilities have also re-emerged. Following COVID-19, businesses were focused on supply chain resilience after essential health supplies got stuck behind bottlenecks. But cost-reduction priorities have quickly resurfaced, even as flaring geopolitical tensions exert their own unique pressures on what gets made where. Resilience against business interruption risk is weakening. Insurers must be alert.

As technologies like artificial intelligence continue to develop at pace, our SONAR risk management experts also examine the increasing prevalence of cyber-enabled organised crime. Costs of being hacked or otherwise infiltrated are exorbitant, but costs of investing in essential, ever-more-sophisticated measures to shield against such attacks aren't trivial, either.

Clearly, risk has its price. Often, the emerging risks we identify in SONAR, an endeavour resulting from months of discussions with in-house experts, scientists, insurance and corporate clients and industry peers, may be only observable, still in their infancy, too new to be manageable.

Even if risks haven't fully taken shape, it's important to call them out at the earliest stage possible, to inspire risk managers and others to begin grappling with them. After all, these risks may eventually become a big deal for their operations, or their daily lives.

Four decades ago, overlooked risks that led to the Schweizerhalle catastrophe had enduring consequences. I will never forget the relief I felt when officials finally said we could leave our apartment. While it led to risk management improvements, stronger rules governing hazardous materials storage, and cross-border efforts to restore and protect the Rhine River, its trauma lingers. The chemical industry suffered profound reputational damage.

We neglect risks at our own peril. That's where SONAR comes in – to help identify them, to stimulate early discussion and debate, so when they finally begin to dominate our risk agenda, we'll be better able to tackle them before risk turns into tragedy. We don't aim to be the closing word on emerging risks. We aim to be the ice breaker.