Global insurance industry executives ranked a global pandemic, a large-scale natural catastrophe and a food/water/energy crisis as the three most important extreme risks for the insurance industry to worry about in the long term, according to a survey conducted by global professional services company Towers Watson.
The other top 10 extreme risks included cyber-warfare, an economic depression, a banking crisis and a default by a major sovereign borrower. The consideration of these extreme risks can be useful in helping insurers design more robust risk management processes.
Stephen Lowe, senior consultant at Towers Watson, said: “Much as we would have expected pandemics and natural catastrophes to figure prominently in insurers’ extreme risk thinking, the high rankings of concerns such as cyber-warfare and a major data compromise in the cloud illustrate how the industry is keeping up to date with risk assessment.”
Among the top 10 extreme risks identified by survey participants, Towers Watson sees a range of implications for insurers. For example, the impact of a food/water/energy crisis includes a potential impact on morbidity and mortality, and the creation of investment winners and losers.
In the case of a sovereign default, Towers Watson believes that as well as the impact on those insurers holding debt in the defaulting country, it would in all likelihood result in a regional insurance crisis and an increase in M&A activity due to forced disposals from banking groups.
Lowe said: “We were delighted to get such a geographically diverse and high response rate to the survey. The kinds of risks that could wipe out an insurance business do inevitably evolve over time, so we were very encouraged to see this degree of engagement from a broad sample of the industry,” said Lowe.
The survey was carried out as during the company’s regular analysis of the extreme risks likely to affect investment.
