Cyber risk has topped a list of concerns for reinsurers in a new report from PwC. Uncharted Waters: tackling reinsurers’ riskiest exposures, released today at the Reinsurance Rendezvous, is based on a reinsurance cut of the Insurance Banana Skins Survey 2017 from PwC and the Centre for Financial Services Innovation (CSFI). The analysis highlights the most serious concerns on the industry’s risk register. Cyber is closely followed by concern about the industry’s ability to weather change and pressure on investment performance. Other prominent fears include political interference and technological disruption.
The report sets out how the risk landscape is shifting and examines opportunities for reinsurers to tackle evolving challenges, which also include Brexit and the international tax agenda.
Regulation and a challenging market environment have long dominated the top of the rankings and, although these still play on reinsurers’ minds, the most pressing concerns in 2017 are rooted in the shock and uncertainty of the ‘new’.
Cyber risk is the number one issue keeping reinsurers up at night and its position at the top of the agenda reflects both the anxieties of underwriting a risk that’s constantly changing alongside the rising threat to reinsurers themselves.
Far from being simply a technology risk, cyber is now a significant reputational and systemic concern for insurers, reinsurers and their clients. Today’s report shows that many businesses across the world are aware of the risk but remain unwilling to buy cyber cover due to restrictive coverage and limits.
PwC says that reinsurers can help their clients by using their underwriting prowess and experience of managing diverse accumulations of risk. With a better understanding of a client’s vulnerabilities and stronger safeguards in place, both reinsurers and their clients will be in a better position to control their exposure to cyber threats.
At number two is a concern about the industry’s ability to address a formidable agenda of change including new technology, shifting customer expectations and pressure on costs, performance and service. In PwC’s latest CEO survey , insurance is shown to have overtaken entertainment and media as the most disrupted sector in the global economy.
In the report, PwC encourages firms to be confident in making lots of little decisions, some of which will end in success and others in learnings. Innovation needs to be brought in from the fringes of businesses and an analysis undertaken of what resources are needed and where investment should be targeted.
Political interference makes a new appearance on the list and holds particular relevance for the global reinsurance industry operating in a world facing a possible partial retreat from globalisation. Uncertainty around the outcome of Brexit negotiations, along with conceivable but increasingly unlikely US tax changes, are just two political events which could have ramifications for reinsurers across the world. While businesses wait for clarity, PwC says it is vital for insurers and reinsurers to make their case with regulators and policy makers and draw up contingency plans for every eventuality.
Commenting, Stephen O’Hearn, global insurance leader at PwC, said:
“One thing that cuts across all of today’s risks is the limited experience the insurance and reinsurance industry has in dealing with them. Change is disorientating but it can also be liberating and it is important to remember that, if approached in the right way, many of these challenges present significant opportunities for reinsurers.
“Now is the time for new thinking and fresh approaches to managing risk and change. While scale has always been an advantage for reinsurers, it can make it more difficult to respond quickly to a rapidly evolving market. This is why talent is just as important as technology in keeping pace - incremental change is no longer enough and innovation needs to be encouraged throughout the business. Partnering with InsurTech firms and assessing the skills needed in your businesses are excellent ways to achieve this.”
Commenting, Arthur Wightman, Bermuda insurance leader at PwC, said:
“If risks are generally measured by their frequency and severity, then cyber adds the capacity to confound. But cyber risk, if addressed through a combination of rigorous underwriting and active threat intelligence, is a sizeable opportunity for reinsurers to lead innovation in the marketplace and capture new sources of revenue in an otherwise soft market. The strategic nature of these risks means that the nature of the response from reinsurers will determine the success and, in some cases survival, of market participants. If reinsurers take the right approach the prize is the ability to capture revenues that could eventually equal or surpass cat premium values.”
Notes to editor.
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