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.
The Centre for the Study of Financial Innovation latest Insurance Banana Skins 2017 survey, conducted with support from PricewaterhouseCoopers (PwC), surveyed 836 insurance practitioners and industry observers in 52 countries, to find out where they saw the greatest risks over the next two to three years.
Change management now leads the cluster of operating risks. The report raises concerns about the industry’s ability to address the formidable agenda of digitisation, 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.
PwC’s insurance leader leader, Barbados, Bruce McClean, said the research had implications for Barbados’ already challenged insurance sector.
“The Barbados insurance industry continues to endure through our domestic economic challenges which are impacting both the risks that companies in this sector face and their performance,” he said.
“Not surprisingly therefore, the findings of the study point to macro-economy and investment performance as two of the main areas of concern by those surveyed. Along with cyber risk as another significant area of concern, these challenges will have to be carefully navigated by those in the sector as they seek to continue to try to meet the expectations of their ever more demanding stakeholders.”
For the first time since the inception of the survey, the Caribbean regional breakdown has been included. The Caribbean produced a below average score (3.20), implying a lower level of risk anxiety and an above average score on the Preparedness Index (3.06), implying a higher level of preparedness. While the responses were mostly positive for the areas of risk, there were common concerns across the region.
They included the state of the world economy with the associated risks to investment performance in insurance company portfolios, including sovereign debt in the Caribbean; the growing threat from cyber-crime; excess capacity in the market; and regulatory intrusion.
Mark Train, PwC global insurance risk leader, said: “Both the challenges and opportunities presented by change underline the vital importance of being clear about where you’re best able to add value, and then being ruthless in targeting investment and management time at these priorities.
“A key part of this ‘fit for growth’ strategy is differentiating the capabilities needed to fuel growth, ‘good costs’ targeted for investment, from low-performing business and inefficient operations, ‘bad costs’ targeted for overhaul or elimination.” (PR)
