Key Issues for the Industry Currently Reflected in the Risk Selection
Insurers are focused on finding ways to remain relevant to their customers while also managing their changing risk profiles. These major themes are being propelled by emerging technologies and exposures, an increasing pace of innovation, and more scrutiny by regulators and lawmakers. For instance, business interruption continues to be an evolving and potentially under-insured exposure for insureds, as many discovered during the pandemic; however, most insurers consider pandemic-triggered business interruption to be uninsurable. Similarly, while the industry has significant opportunities to provide solutions to manage and mitigate cyber risk, it also poses a dynamic threat to insurers both from an underwriting perspective and in terms of the insurer's own operational resilience.
Surprises in the Top 10 Risks Selected
It is somewhat surprising that increasing competition ranks in the top five risks, up from number six in 2019. While we are seeing rates stabilize and start to decrease in some areas, the effects of new market entrants relative to the overall increase in capacity are still developing. It may be that respondents are reacting to the introduction of new InsurTech challengers that have received large funding rounds, with some even becoming public companies. Although InsurTechs have not taken meaningful market share yet, many insurers see these new business models as a call to improve efficiency and customer experience by increasing their investments in technology.
Most Underrated Risks
The risk of cyber attack and data breach ranks at number one, but it could still be underrated by the industry. Unknown and evolving cyber threats have the potential to impact the industry’s underwriting results and significantly disrupt insurance company operations. Insurers must not only manage how they underwrite cyber risks but also make large investments of their own to bolster the ability of their systems to withstand a cyber attack against them directly or against their vendors or trading partners.
Notably, weather and natural disaster risk and concentration risk did not appear in the top 10 list for 2021, but other risks — business interruption (number five), technology or system failure and data privacy requirements (number eight) — bubbled up.
Failure to attract and retain talent was a new addition to the top 10 in 2021, and we expect it to remain an area of focus with the anticipated retirement of 25 to 40 percent of the workforce within the next few years. Additionally, 30 roles in the insurance industry are at risk of disruption by technology, which means existing skill sets might not be adequate, and suitable talent can’t always be found within the industry. Finally, only 4 percent of millennials are interested in pursuing jobs in insurance.
Challenges the Industry Will Face in the Next 3 Years and What Organizations Can Do to Address Them
Environmental, social and governance (ESG) concerns are part of a sweeping movement that will provide opportunities for product innovation, create a need for companies to assess the contents of their portfolios and change the way insurers think about talent management. The ESG theme is reflected in regulatory/legislative changes (number two), damage to reputation/brand (number three), tech/system failure (number six), failure to innovate or meet customer needs (number seven) and failure to attract or retain top talent (number nine).
To understand the risks and opportunities associated with ESG, insurers can start by reviewing current operations to assess their exposures to projected ESG-driven changes. Already, regulatory pressures related to ESG have mounted in 2021, most notably in the U.K. and the EU; other regions will likely follow suit.
How New Challenges Will Require Companies to Change Their Approaches to Risk Management and Mitigation
Mitigating ESG risk is critical and will require companies to identify and assess exposure while monitoring the transition to increased sustainability and litigation trends. Organizations need to assess changing product portfolios and evolving risks with a view toward product innovation.
According to the U.S. Census Bureau, the 65-and-older population will almost double over the next 30 years, reaching 88 million by 2050. Workforces are aging quickly, which will have a particular impact on the insurance industry.
The insurance sector will face a shortage of talent in the near future as experienced staff retire and not enough new talent enters the industry. In the U.K., for example, the percentage of young people entering the insurance industry has steadily declined. Combating this trend will be a big challenge for the sector, especially as technology will play an even bigger part of the business model and requires different skill sets to support the need for innovation.
Current Top 10 Risks
Predicted Future Risks