Cyber, climate change and economy top risk list for French carriers

Over a five-year horizon, cyberattacks, climate change and the economic environment are the main threats to French insurers and reinsurers, according to the latest annual risk map commissioned by the French insurance association (France Assureurs).

The analysis, which is based on interviews with top executives at the end of last year, found that the top three risks remain unchanged compared to previous surveys. But the hierarchy between these three risks is noticeably blurring, said the association.

The risk of cyberattacks narrowly remains at the top of the ranking. Cyber has occupied this position since the first edition of the map. “Companies continue to implement security measures and protocols, but the severity of attacks could increase due to the geopolitical context and the emergence of new techniques linked to artificial intelligence,” commented the association.

The losses from climate change are clearly increasing, both in frequency and severity. Cat losses were relatively light in France in the first half of 2023 but intensified in the second half with severe stormy episodes and floods of an unprecedented scale in the North of France and Pas-de-Calais.

Elsewhere in the world, the loss ratio is particularly high, with nat cat economic costs estimated at $260bn and an insured cost that tops $100bn for the fourth consecutive year.

“It should be noted that the loss ratio of severe storm episodes of 60 billion dollars is twice its average over the last ten years. Beyond the loss of the year 2023, climate change will have harmful effects in the medium and long term and will result in an increase in the frequency and severity of climatic events,” said France Assureurs.

The economic environment is again the third big risk identified by French insurers and reinsurers. “It is increasing sharply in frequency and severity in a context of high inflation, tightening monetary policy and falling demand. The sharp slowdown in activity raises fears of an entry into recession in several advanced economies at the turn of 2023-2024,” said the association.

France Assureurs noted that regulatory pressure is often the response from legislators to mounting risks, and warned the insurance industry faces an “avalanche” of new rules.

“The insurance sector, through its multiple involvement in the economy, faces a risk of regulatory avalanche. Mainly identified as short-term risks, these risks could affect insurance from 2024 in particular via the European reporting directives on the sustainable development of companies (Corporate Sustainability Reporting Directive – CSRD) and investment products (Retail Investment Strategy – LAUGH). If these texts make it possible to mitigate the occurrence of risks, they can also have the secondary effect of limiting the capacity of the insurance industry to face new risks,” said the association.

In terms of emerging risks, artificial intelligence is not surprisingly top of the list for French carriers. “In 2023, the emergence of general public generative AI tools opens new avenues for improving working methods and propels this new risk directly to first place,” said the association.