Technological change, cyber become top risks for insurers

The global insurance industry’s ability to confront structural and technological changes is now the greatest risk it faces, according to a new survey of insurers and close observers of the sector.

Change management is at the head of a cluster of operating risks which have jumped to the top of the rankings, according to the survey conducted by The Centre for the Study of Financial Innovation (CSFI) with support from PwC.

The CSFI survey called Insurance Banana Skins 2017 included 836 insurance practitioners and industry observers in 52 countries, to find out where they saw the greatest risks over the next 2-3 years.

The report raises concerns about the industry’s ability to address the digitisation agenda, new competition, consolidation and cost reduction it faces, especially because of rapidly emerging technologies which could transform insurance markets, such as driverless cars, the ‘internet of things’ and artificial intelligence.

Cyber risk follows close behind, with anxiety rising about attacks on insurers themselves as well as the costs of underwriting cyber-crime. Other major concerns include the adequacy of insurer’s internal technology systems and new competition, particularly from the insurtech sector.

The next cluster of high-ranking risks, interest rates, investment performance and macro-economic risk, shows that concern about economic instability remains high. Although respondents acknowledged signs of growth, confidence in the recovery is not strong for reasons as widely dispersed as the slowdown in China, the risk of Trump-era protectionism, and populism in Europe. The risk of political interference was seen to have risen sharply. However, Britain’s exit from the EU was seen to be a minimal source of risk for insurers, particularly those without operations in the UK.

Regulatory risk, which has topped the last three editions of the survey, has fallen out of the top five in the 2017 edition. This is largely because recent regulatory changes are settling in to business as usual (e.g. Solvency II), though the cost and complication of regulation continue to be a concern, according to a press release.

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