Cyber-risk tops insurance leaders’ concerns
Cyber-risk is the top concern for Bermuda’s insurance market, followed by increasing regulation and political interference, according to a global survey.
The island’s insurers and reinsurers have strong concerns about the threat of political interference in the form of efforts by Donald Trump, the US President, “to prevent the export of US insurance business to offshore centres”, the Centre for the Study of Financial Innovation has discovered.
The centre has published its sixth Insurance Banana Skins survey, a biennial report conducted with support from PwC that gauges the level of anxiety and preparedness of insurance practitioners and industry observers in 52 countries.
Globally, the biggest concerns are change management, cyber-risk, technology and interest rates, according to the 836 insurance industry respondents to the survey.
The top concerns in Bermuda were cyber-risk, regulation and political interference. The impact of Brexit was also of higher concern to the industry on the island than it was to those elsewhere in the world.
“Bermuda was one of the few jurisdictions which expressed concern about Brexit because of its connection with the London market and passporting from there into the EU,” the survey noted.
The soft market and resulting capital overcapacity was also a dominant worry for the 49 survey respondents in Bermuda.
However, the island produced a lower than average score on the Banana Skins Index, implying a lower level of risk anxiety. Bermuda scored 3.09 on the index, almost identical to Denmark, while the list was topped by Taiwan, with 3.66. The global average was 3.31.
Bermuda also beat the global average in the preparedness index, with a score of 3.11, implying a higher level of preparedness. The highest scorer in that list was Spain, with 3.56, while the UK and Germany were nearer the bottom on 2.71 and 2.70 respectively. The global average was 3.02.
The self-scored survey, which was first conducted in 2007, asks insurers and industry observers where they see the greatest risks over the next two or three years.
Arthur Wightman, PwC insurance leader, said: “The societal and economic contributions from insurance continue to be the stabilising force in the global capital markets.
“That said, the complexity of running global insurance companies continues to grow amid increasing wealth disparity, blurring of industry boundaries, age demographic pressures, the breakdown of global consensus, and increasing nationalism and declining trust.
“There are huge opportunities for the market, but CEOs have a very challenging task with succeeding among this change.”
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.”
While David Lascelles, survey editor, said: “For the first time in six editions of this survey, operating risks pose the greatest threat to insurers.
“Structural and technological changes to the industry could upend traditional business models. At the same time, insurers are grappling with a very difficult economic climate, which helps explain why anxiety is at an all-time high.”
According to CSFI, 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 anxiety includes the threat of attacks on insurers themselves, and the costs of underwriting cybercrime.
According to survey respondents, overall, the climate for insurers is becoming more challenging.
The survey can be downloaded at http://www.csfi.org/