(Re)insurance exists to help manage risk. But that doesn’t make (re)insurers any less immune to new and changing risks.
Quite the opposite in fact when you take in to account not only inherent business risks, such as macro-economic and market factors, regulatory and reporting issues, and technological risk, but also the dynamic nature of the risks the industry underwrites for policyholders and/or primary insurers.
With that in mind, Willis Towers Watson recently asked (re)insurers what they consider the most dangerous and extreme risks currently facing their organizations.
Those classed as the most dangerous were cybersecurity and cybercrime, disruptive technology and pricing and product line profitability. Legislative and regulatory concerns and the frequency of natural catastrophes were also cited regularly among the risks of greatest concern. Cyber’s rise to the top of the rankings reflects the strong impetus to better understand both (re)insurers’ own and customers’ cyber vulnerabilities.
Significantly, five of last year’s top 10 most dangerous risks dropped to a lower (and in some cases, much lower) ranking and five previously lower ranked risks took their place.
At the same time, and building on the Willis Towers Watson Thinking Ahead Institute’s long-running analysis of how extreme risks may impact investment, we asked (re)insurers to assess how those same risks could affect them based on their likelihood, intensity, scope and certainty.
By these measures, (re)insurers rank global temperature change, sovereign default and terrorism as carrying the most wide-ranging risks. These findings again signal how perceptions of risk types, severity and endurability have changed over time.
Changing of the guard
Staying one step ahead of these evolving risks, but also grasping the opportunities they may present, can rarely be achieved with isolated actions.
Take climate risk (which appears in the list of top 10 dangerous risks and related to which climate change is seen as an existential and likely extreme risk), for example. For (re)insurers, it is multi-dimensional and involves far more than assessing data to identify cat exposures when underwriting a line of business. Shifts in attitudes and activity in areas such as corporate citizenship and social responsibility, legislation and public policy, sustainable and climate resilient investment, and regulatory and financial reporting mean that the nature of climate risk is in a near constant state of flux and impacts the whole organization.