``Tech and cyber dominate insurers’ horizon scanning of business risks''

Urgent need for business and technology modernisation poses the greatest threat to the global insurance industry according to the survey. At the heart of responses was the view that many sector players are weighed down by legacy business models and IT infrastructure that are poorly equipped to handle the changing demands of the industry.


Technology risk, cyber risk and change management have been pinpointed as the three biggest concerns for insurers across the globe, according to a poll of more than 900 senior industry experts.


The Insurance Banana Skins report, published by the Centre for the Study of Financial Innovation (CSFI) in association with PwC, follows on from previous surveys issued biennially since 2007. This year’s analysis was based on 927 responses from 53 territories, including 66 UK respondents.


Urgent need for business and technology modernisation poses the greatest threat to the global insurance industry according to the survey. At the heart of responses was the view that many sector players are weighed down by legacy business models and IT infrastructure that are poorly equipped to handle the changing demands of the industry.


Threats posed by cybercrime were judged to be the second biggest Banana Skin forming the leading risk for the broking, composite and reinsurance sectors. Cyber concerns from past surveys have intensified.  The insurance industry - an enticing target because of the volume of valuable data it holds - faces a barrage of attacks from criminals and state-actors, many of which are extremely sophisticated, the report suggests.


The risk that inadequate response to change management will damage insurers continues to be seen as urgent, taking third spot on this year’s list. Demand for these changes to be implemented is being driven by technologies such as artificial intelligence; the internet of things which is overhauling insurance markets and radically different customer expectations.


Significantly, the overall tone of the responses is the most negative since the Banana Skins analysis began. This is largely due to the scale of the challenges facing the industry through technological and structural change, and concern about the industry’s ability to manage them successfully. The results come alongside growing economic uncertainty around the world, and heavier regulation.


Despite the drop in sentiment, the overall view on insurers' ability to handle these risks is that they are better prepared than ever, with greater confidence in their ability to navigate the potential stumbling blocks.


Andy Moore, Global Insurance Risk & Regulatory Leader, PwC said:“Operational risk continues to be the key category of risk occupying insurers’ boardroom conversations. While there is a pressing need for better and efficient technology, in the era of digitalisation, the threat of cybercrime has become ever more prominent. Linked to this is the risk of change management, questioning whether insurers are embracing such changes in technology and the virtual world.


“As always, the successful management of change is dependent upon how it’s perceived - do these risks present an opportunity for insurers to proactively overhaul legacy systems for a more customer centric innovation or cause a disruption that requires a reaction to remain relevant? Either way, the need to upskill the workforce to face these opportunities and challenges, however it is perceived, is in critical demand.”


The challenges of technology and cyber risk were the most pressing for all sectors including life insurance, non-life, composite and reinsurance. Insurers’ concerns about regulatory risk were also generally high alongside common concerns about the quality of human talent in the industry, the report found.


Differences were found mainly in the assessment of interest rate risk which life insurers ranked high along with investment risk, and climate change which was particularly flagged as a concern by the non-life and reinsurance sectors. Concern about the macro-economic outlook was highest among life insurers and reinsurers.


A breakdown of responses by region displayed similar risk priorities. The challenges of technology risk, cyber risk and change management ranked among the top risks for all regions. The rise in regulatory risk was also a common concern in all regions except Latin America. Concern about business conditions such as the outlook for the global economy and interest rates was highest in Europe. Political risk was ranked highest in the Americas, driven mainly by the rise in populist politics. Climate change featured highly in all regions except Asia Pacific.


Big movers

This year’s survey has produced striking changes in the ranking of some Banana Skins, reflecting shifting perceptions of risk in a difficult market.


Regulation (No. 4). A heavy regulatory agenda including the insurance accounting standard IFRS 17 and consumer protection has increased compliance risk and implementation costs.

Climate change (No. 6). The spate of natural catastrophe events has increased the urgency of this risk, and could be undermining insurance pricing models.

Reputation (No. 13). Data security, populist politics and ‘declining social relevance’ could all damage insurance.



Interest rates (No. 10). The industry has learnt to live with low interest rates, and the next move may be up.

Guaranteed products (No. 14). For similar reasons, products which offer guaranteed returns appear less problematic.

Social change (No. 18). The industry is preparing for the challenge of meeting social demands created by greater longevity, growing medical and care needs.


Brexit ranked 21 on this year’s list as most respondents outside of the UK and EU believed they were insulated from any potential fallout, even judging Brexit to be ‘a non-event’ according to the report. Global respondents reported being only distantly affected, alongside being adequately prepared.


Perhaps unsurprisingly the greatest concerns came from the UK, where insurers said that the loss of direct access to the EU market would damage existing business and hamper growth.


Stephen O’Hearn, global insurance leader at PwC, said:“In 2017 we saw regulation drop overall with change management rising as the top risk. Two years on, the sector is projecting a rise in the threat of regulatory risk. This has been driven by new areas of regulation introduced since 2017 including General Data Protection Regulation (GDPR)  in Europe and various new conduct standards across the globe. The pressure applied by upcoming new accounting standards, particularly IFRS17 has amplified the issues. The task of addressing and implementing these new regulatory standards, in the mandated timeframe, is proving to be a challenge for insurers everywhere.”