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Section 1: COVID-19 reshapes the emerging risk landscape010COVID-19 reshapes theemerging risk landscapePandemics are now the top emerging riskPandemics and infectious diseases are the mostimportant risks to society in the next five to ten years,according to our surveyed experts. Last year, they rankedeighth. The number of experts that rank pandemics asa major emerging risk more than doubled, from 23% to56%. The general public agrees: in our research, they rankhealth risks as their top cause of vulnerability, alongsidecomputer-related risks.Given the current focus on tackling COVID-19, it isnatural that experts’ primary concern when it comes topandemics and infectious diseases relates to new strainsof diseases and that other threats are deprioritized. Thisis illustrated in our survey data: the proportion of expertswho are concerned about antimicrobial resistance andsuperbugs, for example, has tumbled from 29% last yearto 9% this year.This is no surprise. When the survey for this report wascarried out in July 2020, more than half a million peopleworldwide had succumbed to COVID-19,2 and manycountries were in lockdown.There may have been a decrease in the perceived severityof antimicrobial resistance, but it still has the potentialto create a future health crisis. Global spread of bugs’resistance to common antibiotics could dramaticallyraise the risk level of common healthcare treatmentssuch as chemotherapy, organ transplants, caesareansections, and hip replacements. This would not onlyprolong illness but also significantly increase the cost ofhealthcare. The impact of these risks may be less suddenthan a pandemic, but the long-term effects have thepotential to be equally devastating.So, unlike some of the other risks discussed in this report,this is a risk that is playing out today in an extreme way.That is why 58% of experts describe this risk as “alreadythere,” and more people say that the risk of pandemicsand infectious diseases is already present than they doabout any other emerging risk.However, pandemics and infectious diseases are notjust the top emerging risk because of the very currentand tangible threat to the general population’s health.Spiralling public debt, escalating geopolitical tension,growing mental health concerns, and surging inequalityare other emerging risks that have been triggered oraccelerated by COVID-19. In addition, there is a risk thatthe public authorities’ focus on addressing COVID-19might lead to the neglect of other major but lessimminent threats.2Worldometer, Coronavirus death toll, 24 August 2020

Section 1: COVID-19 reshapes the emerging risk landscape011Pandemics and infectious diseases now top emerging risk20202019Pandemics and infectious diseases56%23%54%Climate change51%Cybersecurity risks38%42%Geopolitical instability17%Macroeconomic risks16%Financial risks15%Pollution0%10%24%22%Natural resources and biodiversity risks56%33%28%30%Social discontent and local conflictsNew threats to security67%27%21%20%23%20%30%40%50%60%Fig 1 Q. Out of these 25 risks, please select the top five emerging risks that may have a significant impact on societyat large in the next five to ten years.The public feel most vulnerable to health and computer-related risksHealth risksComputer-related risksClimate change risksRoad risksFinancial risksFood risksNatural risksThe risk of unemploymentThe risk of being mugged or robbedThe risk of an attack/terrorismThe risk of a domestic accident4.3Industrial risks012346.16.15.95.75.65.45.55.15.14.94.856Fig 2 Q. How vulnerable do you feel to the following risks, on a scale of zero to ten? Zero meaning that you do notfeel vulnerable at all, and ten that you feel highly vulnerable.

Section 1: COVID-19 reshapes the emerging risk landscape12Are the authorities prepared to tacklethe fallout from the pandemic?Encouragingly, surveyed experts believe that publicauthorities are more prepared to tackle pandemicsand infectious diseases than any other emerging risk.The proportion that believes public authorities are wellprepared has increased to 33% from 22% last year.Although there are clear examples of mistakes, mostgovernments around the world acted decisively toaddress the impacts of COVID-19. In France, for instance,the “temporary unemployment” scheme, under whichthe state pays subsidies to businesses to fund thesalaries of those prevented from working, was set upto avoid mass bankruptcies and layoffs. At the end ofApril 2020, close to nine million workers were benefitingfrom this emergency scheme. Many other countries haveintroduced similar measures.“Governments reacted really quickly to COVID-19,”says George Stansfield, AXA Deputy Group CEO andGroup General Secretary. “In most major industrializedcountries, packages were put in place very quickly toprotect workers from unemployment. This is in starkcontrast to 2008.”However, governments may have acted swiftly to mitigatethe immediate direct impacts of COVID-19, but it remainsto be seen how well they cope with the long-termchallenges that may follow.The perceived competence of public authorities variessignificantly around the world. For example, 45% ofexperts in Asia-Pacific say that public authorities arewell prepared for pandemics and infectious diseases,compared with 34% in Europe, 22% in Africa, and just16% in the Americas. In 2019, only 31% of experts in Asiaand 18% in Europe said that their public authorities werewell prepared for pandemics and infectious diseases.This reflects the fact that many Asian countries havemore experience in dealing with infectious diseases, suchas SARS in the early 2000s and, more recently, MERS inSouth Korea.Public authorities in Asia-Pacificare considered best prepared forpandemics and infectious diseasesPercentage that are absolutely or somewhatprepared for pandemics and infectious uropeAfrica16%The AmericasFig 3 Q. Would you say that public authorities in yourcountry are well prepared for the emergence of this risk?

Section 1: COVID-19 reshapes the emerging risk landscape13Why did AXA participate inthe development of aninsurance mechanism againstexceptional risks?Alban de Mailly Nesle, AXA Group ChiefRisks & Investment OfficerThe crisis we are currently experiencing is exceptional inmany ways and presents a so-called “systemic” risk event(i.e., it affects the entire system). It is worth mentioningthat insurance is based on the principle of mutualizationof risks between policyholders, which is how insurancepremiums are calculated. If all individuals are affected,which is the case in a systemic risk event, insurance canno longer function as traditionally understood.It, therefore, seemed important to consider these newrisks and the insurance mechanisms that could be putin place to deal with them. This is why AXA joined theFédération Française de l’Assurance working group at theend of April to participate in the definition of a possiblefuture insurance scheme for exceptional catastrophes(“CATEX” scheme) through the appointment of Jacquesde Peretti, CEO of AXA France, as co-sponsor of theindustry working group.How would this scheme work?The French scheme is intended to be a simplemechanism with a rapid compensation process. In theevent of a claim, it is crucial to provide financial supportas quickly as possible to professionals, particularly SMEs,who face sudden interruptions or significant reductionsin their business income.Accordingly, the CATEX scheme has two main features.First, compensation would be automatic, based onthe principle of parametric insurance. Compensationwould then be triggered when one (or more) predefined event(s)—such as an administrative closurelinked to a pandemic, natural disaster, or terroristact—is pronounced by the public authorities. Then, thecompensation would be a lump sum. This would avoidthe need to assess the operating losses incurred, thussignificantly speeding up the claims management and,therefore, the compensation process.Regarding the amount of the lump-sum compensation,this system would be based on a public–privatepartnership. The insurers and reinsurers would committo an annual compensation capacity based on aproportion of the premiums collected. The CATEX projectthus provides for an annual compensation capacity byinsurers and reinsurers of up to two billion euros. Beyondthis capacity, the state alone would take over throughCCR, the public reinsurer.What are the next steps?Last June, the CATEX project was presented to theMinistry of the Economy and Finance, which chose toopen public consultation on the subject in order toallow all interested stakeholders, such as companiesand industry associations, to express their needs andpreferences in terms of coverage for exceptional riskssuch as pandemics before a debate with French MPs.The consultation ended on August 31, and we are nowawaiting the directions that the Minister wishes to give tothis project.

14COVID-19 accelerates long-termshifts in the risk landscape: insightsfrom Eurasia GroupThe COVID-19 pandemic is stress testing governmentsaround the world, straining their resilience, institutionalcapacity, and response effectiveness. In key globalmarkets in Europe, North America, and Asia, thepandemic is bringing about a wide range of destabilizingshocks to healthcare systems, economies, andhouseholds.Each of these will continue to force governments torespond to and recover from shocks that are alreadyrealized and prevent and mitigate the impact of thosethat are still to come. Insufficient responses will prolongthe economic and financial damage from the pandemicand, in some cases, will cause political instability asdissatisfied citizens punish ineffective governments.Most immediately, the pandemic is exposing globalpublic health vulnerabilities, highlighting weakness innational and global preparedness around healthcarecapacity, response coordination, and readiness aroundtherapeutic and preventative responses, includingvaccine development and equitable distribution. Asthe world shifts in late 2020 and into 2021 from crisisresponse to treatment and recovery, the geopoliticsof health—challenged by greater nationalism andan impaired multilateral system of governance—willcontinue to shape how quickly and how well the worldemerges from the pandemic.Section 1: COVID-19 reshapes the emerging risk landscapeBeyond health, the pandemic is acting as an accelerantof existing or nascent geopolitical themes and trends.These pre-existing trends now accelerated by COVID-19include the trajectory of China’s relationship with theworld (and especially the United States), technologycompetition, supply chain reordering, policy responsesto global climate change, nationalist and protectionistpolicies, and the role and appropriate use of industrialpolicy, among many other themes.Moreover, the pandemic’s potential role as an accelerantgoes beyond economic and geopolitical trends; it hasthe potential to accelerate the rise of all emerging risks inunforeseen and unexpected ways. For so many of thesethemes and their associated risks, the pandemic meansthat what otherwise would have unfolded over manyyears is, instead, taking place over just months. In otherwords, slow tectonic shifts in the landscape have insteadbecome earthquakes, bringing ruptures and large-scaledislocations to the global risk landscape.

15Section 1: COVID-19 reshapes the emerging risk landscapeHeightened interconnectivitydemands a coordinated responseLast year’s Future Risks Report found that there is anincreasing potential for risks to influence each other inunpredictable ways. The COVID-19 pandemic is adding tothat interconnectivity.Take social discontent and local conflicts, which ourexperts rank as the fifth-most-important emerging risk tosociety. COVID-19 could plunge an estimated 49 millionpeople around the world into extreme poverty in 2020.3This will accelerate local conflicts and discontent, both inlower- and high-income countries.Interdependencies between risks demand greatercollaboration: governments must act together toaddress truly global threats such as climate change andpandemics. When asked the level at which decisionsshould be taken to counteract emerging risks, 50% ofthe general public say at the global level, and 11% say atthe continental level. Just 30% say that decisions shouldbe taken at the country level, and just 9% say at the citylevel. Interestingly, European cities still have a longway to go: the general public is not convinced bythe effectiveness of city-level decisions to faceemerging risks.Public authorities, the private sector, and civil societymust collaborate to address challenges that need amultifaceted and coordinated response. Even withinindividual businesses, leadership must work together tounderstand how a risk in one area of the business couldmorph to impact another.“Today’s emerging risks are more integrated and havemultiple angles, so businesses need everyone in the roomwhen it comes to tackling them,” says George Stansfield,AXA Deputy Group CEO and Group General Secretary.3The World Bank, The impact of COVID-19 on global poverty, 20 April 2020“At the government level, one of the positive outcomes ofthis could be better collaboration with the private sector.It’s in the interest of both to work together to address someof the most important threats, such as climate change.”“The pandemichas exacerbatedinequality. The factthat white-collarworkers could safelywork from homeduring lockdowns,but blue-collarworkers couldn’t,and were thereforemore exposed to thevirus, symbolizedthis. It’s anotherfactor that mayundermine socialcohesion in manyWestern countries.— Renaud Guidée, AXA Group ChiefRisk Officer

Section 1: COVID-19 reshapes the emerging risk landscape16COVID-19 deepens the public’s sense ofvulnerability, but will it last?Unlike previous crises, COVID-19 and the resultinglockdown measures are having a direct and personalimpact on people of all ages in all countries. As a result,73% of the general population say they believe thatpeople across the world feel more vulnerable than theydid five years ago. Notably, people in Italy, Mexico, andSpain, some of the areas most impacted by COVID-19,feel more vulnerable to emerging risks than those in theUK, Germany, and Switzerland. Risk experts are evenmore pessimistic: 83% consider that the vulnerability ofpopulations has increased worldwide in the pastfive years.In addition to feeling more vulnerable, the general publicis now more risk-averse: 65% now take less risk in theirdaily lives than before COVID-19. Heightened feelings ofvulnerability and risk aversion have their own associatedimpacts. For example, 81% of the general population saythat emerging risks have or will soon affect their travelplans, and three-quarters say that they have negativelyaffected their purchasing power.This lower risk tolerance explains most of the decisionsmade by governments in the first months of the COVID-19crisis. It is also a key driver of the general public’sincreased demand for protection: even though 85% agreethat zero risk does not exist, they want and expect to beprotected, both by public authorities and private insurers.The emerging risk landscape is so dominated byCOVID-19 that it is not yet clear whether these behavioraltrends will continue when the pandemic ultimatelyrecedes. If they do, such a long-term shift in publicbehavior will have a profound impact, not only on civilsociety but also on the economy.People in Mexico, Italy andSpain feel most vulnerable toemerging risksItalyGLOBAL (5.4)6.2Mexico6.2Spain5.9Hong 4.84.84.7Fig 4 Q. How vulnerable do you feel to the followingrisks, on a scale of 0 to 10? 0 meaning you do not feelvulnerable at all, and ten that you feel highly vulnerable.

Section 1: COVID-19 reshapes the emerging risk landscape17Respondents in the US andHong Kong experience the greatestincrease in vulnerabilityPercentage that are more vulnerable comparedwith five years agoHong 9%25%Fig 5 Q. When you think about the way in which thingshave been evolving in the past five years, would you saythat people are more or less vulnerable?

Section 1: COVID-19 reshapes the emerging risk landscape18Macroeconomic risk shootsup the agendaThe COVID-19 pandemic is just as much an economiccrisis as it is a health crisis. Lockdowns caused GDP toplunge 12% in the EU4 and 33% in the US5 in the secondquarter of 2020. Globally, the IMF predicts that GDP willshrink by 4.9% in 2020.6It is, therefore, no surprise that experts now considermacroeconomic risk to be the seventh-most-importantemerging risk. Last year, they ranked it tenth. When askedwhich macroeconomic risks are most important, expertsrank durable mass unemployment first. In the long term,younger people who are just entering the job market arelikely to be affected most.Macroeconomic risk is felt most acutely in Spain (where35% of experts consider it an important risk), Italy (31%),and Mexico (31%). This could be because these countrieshave been particularly affected by COVID-19. However,unemployment in the US has risen to above 10%, yet just13% of US experts consider macroeconomic risk to beimportant—the lowest proportion globally.Financial risks have also risen up the agenda to beexperts’ ninth-most-important emerging risk this year,and increased public and private debt levels are ofparticular concern. Global net public debt is expectedto rise to 85.3% this year from 69.4% last year.7 This willchange the playing field for younger generations, who willinherit unprecedented levels of debt.“Debt is going to be a major issue in the next 10 to 20years,” says Gilles Moëc, Chief Economist of AXA Group.“We are responding to the crisis by allowing a massiveincrease in both public and private sector debt. It’sunavoidable and the right thing to do, but we mustacknowledge that many countries will have more debt asa percentage of GDP than at any time since the SecondWorld War. That’s fine now, as monetary policy is veryaccommodating, but when normal monetary policyresumes, it may cause a crisis—particularly foremerging markets.”Are public authorities prepared to respond tomacroeconomic and financial risks? Our surveyedexperts are confident that they can respond to financialrisks, but are much less confident when it comes tomacroeconomic risks.This reflects the fact that while many governments andcentral banks have already responded much more rapidlythan they did to the 2008 crisis, it may not be enoughgiven the unprecedented scale of the economic impact.Eurostat, GDP down by 12.1% in the euro area and by 11.9% in the EU, 31 July 2020CNBC, Second-quarter GDP plunged by worst-ever 32.9% amid virus-induced shutdown, 30 July 20206IMF, World Economic Outlook Update, June 2020, 24 June 20207Financial Times, Governments face ‘massive’ rise in public debt, IMF warns, 15 April 202045

Section 1: COVID-19 reshapes the emerging risk landscape19Experts in Spain, Mexico and Singapore aremost concerned about macroeconomic riskPercentage that rank macroeconomic risk as a top five emerging anAustraliaUS14%13%Fig 6 Q. Out of these 25 risks, please select the top five emerging risks thatmay have a significant impact on society at large in the next 5–10 years.

20Section 2: Countries ignore climate change at their perilCountries ignore climatechange at their perilExperts outside Europe deprioritize climatechange risk at an alarming rateIn recent years, there has been a growing consensus thatclimate change poses an immense threat to society, asshown by our survey data. Now, however, that consensusappear

This edition of AXA’s Future Risks Report was written in unprecedented circumstances. As this report was being written, more than 33 million people worldwide had been infected, and more than one million had died as a result of COVID-19.1 Countries that had initially brought the virus unde