Cyber risk, nat cats and regs top ‘Banana Skins’ for non-life insurers

The survey of over 800 insurance practitioners and observers from 54 countries also finds that cyber risk entered the overall global ranking of life and non-life insurers, reinsurers, brokers and market observers for the first time at number four. It was superseded by regulation at number one, macro economic conditions at two and interest rates at three. The Insurance Banana Skins survey has been carried out every two years since 2007. The property and casualty respondents were, as might be expected, primarily concerned with underwriting risks, especially the growth of cyber and catastrophe exposures, said the CSFI, a non-profit think tank. But making up the top ten concerns of non-life respondents were the broader issues of regulation (3) change management (4), the macro-economy (5), interest rates (6), distribution channels (7), quality management (8), climate change (9) and investment performance (10).hide"As with other sectors, the weight of new regulation was a strong concern, as was structural and technological change in the business, particularly distribution. The sector was less concerned than the life side with investment and yield issues," said the CSFI. Regulation is perceived as the top risk across all sectors for the third consecutive Banana Skins survey. According to Andrew Hilton, Director of the CSFI, there is a widespread fear within the risk transfer sector that the volume of regulation is 'swamping the industry'. He also said that a risk 'cluster' encompassing macroeconomic risks (2), interest rates (3) and investment performance (5) suggests that the current low interest rate environment is hurting the insurance industry and that things could get worse when rates rise. The 'most striking' new theme to emerge from this year's survey is the high level of anxiety about cyber risk, specifically software failure and data security breaches, continued Mr Hilton. The risk is ranked number one in the US, Africa and the UK, and number two in the Far East Pacific region. It is the top ranked risk among non-life respondents, second among reinsurers and sixth for the life insurance sector. "The chief concern is the security of the ever growing volumes of data that insurers hold in cloud-based storage systems. For many, major breaches are inevitable; the question is how much damage they will cause," said Mr Hilton. As the director of risk management at a non-life insurance company in Canada said in response to the survey: "Insurers are prime targets to be victimised given the richness of data-credit card information, medical information, and other underwriting information. It's not a matter of if but when it will happen". The task is made more difficult by the growing number of attacks, only a fraction of which need to get through to cause serious disruption. The chief financial officer of a non-life company in Australia said cyber risk was 'a major threat'. "We repel more than 20 serious attacks every day. Half of these we suspect are state-sponsored attacks," he added. More generally there is a perception that the quality of management, and risk management in particular, has improved in the insurance industry since 2013, said the CSFI's Mr Hilton. "The insurance industry itself clearly feels that it is significantly better prepared to handle the problems it faces than it was at the time of the last survey in 2013. Against that, however, the overall level of concern about risks within the industry is at its highest level since the first survey in 2007," he added. In Europe interest rates are the number one concern for respondents across all sectors, followed by regulation (2), guaranteed products (3), the macro-economy (4) and cyber risk (5). The persistently low interest rate environment in Europe was seen as a more severe threat than in any other region, leading to particular concerns about guaranteed products and investment performance, said the CSFI. Elsewhere, the major risks in Europe were largely in line with global response. Overbearing regulatory requirements, especially the EU's Solvency II Directive, and industry risks dominated by insurers' difficulties in adapting to change, notably in technology, were to the fore. The CSFI's Insurance Banana Skins 2015 survey, in association with PwC, was conducted in March and April this year. 34% of respondents were from the non-life insurance sector, 27% from the life sector, 6% were reinsurers and 5% brokers. The remaining 28% were classified as observers.

Cyber risk, nat cats and regs top ‘Banana Skins’ for non-life insurers

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