Reinsurers rank climate change as the top risk facing the global insurance industry, according to PwC’s latest survey.
Produced in collaboration with the Centre for the Study of Financial Innovation, the survey investigates the risks facing the insurance industry in the second half of 2021. This was completed by more than 600 insurance industry leaders in 47 territories.
The top risk of concern for reinsurers is climate change, reflecting the global focus on climate change as part of a wider ESG agenda. PwC describes this as a “step-change” for the insurance industry as governments and regulators continue to intensify reporting requirements for companies to explain and demonstrate how they are quantifying and managing ESG-related risks.
The rise in catastrophic events has also elevated climate risk in the view of reinsurers to an immediate threat rather than a longer-term issue.
Arthur Wightman, PwC Bermuda leader and insurance leader, explains: “It is clear from our biennial survey that the impact of climate change is now seen as a far nearer-term risk to insurers and reinsurers than previously considered. The industry is also gravely concerned that the wider implications of climate change are difficult or impossible to predict.”
“This week’s COP26 discussions are an opportunity for the insurance industry to highlight the unique and critical role it can play in bringing its expertise and resources to help address the formidable challenge of climate change and help the world go faster to net zero,” he adds.
Overall, life, non-life, reinsurance and composite insurers rank cybercrime as the top risk facing the global insurance industry over the next two to three years, as remote working during the COVID-19 pandemic has highlighted the vulnerability of firms.
PwC notes that the evolving type, volume and success of cyber threats has heightened cyber to both an operating and underwriting risk, as it can cause losses from subsequent business interruption.
In addition, cybercrime is a mounting risk for insurers because of the associated operational issues, including the loss or corruption of data, damage to reputation, and credit losses.
Matt Britten, risk assurance partner, PwC Bermuda, comments: “As organisations introduce cloud-computing and new digital solutions with the increase in virtual working, the challenge for insurers has become more complex than ever.”
“The rise in the risk posed by cybercrime reflects concern about both the vulnerability of insurers’ systems to cyber attacks and the costs of underwriting cyber insurance. Of significant concern is that insurers may be underestimating the potential costs of cybercrime when writing policies.”
Cybercrime was followed in the overall rankings by regulatory risk (as insurers say regulation has become excessive, bureaucratic, and increasingly an impediment to business operations) and technology (there is concern around the ability of the insurance industry to stay at the forefront of technological modernisation, as well as the operational risks associated with managing the transition to digitised services).
Other named concerns include interest rates, human talent, change management, competition, investment performance and macronomy, while reinsurers also name capital availability and political risk as notable areas of concern.
PwC identifies that COVID-19 does not appear as overwhelmingly significant in its 2021 report — although the pandemic featured in responses as an operating and underwriting risk, overall respondents did not expect it to have a profound or lasting impact on the insurance industry.
Survey participants were also asked to rate how well-prepared they perceive the insurance industry to be in its ability to handle the identified risks. On a scale of 1 (“poorly”) to 5 (“well”), the average response was 3.22, marking a slight increase from 3.11 in the 2019 report.
