> PwC Bermuda:
New Tech and Cybercrime Top List of Concerns in Reinsurance Survey By Arthur Wightman
The inability to deploy new technologies and the readiness to confront structural change top the list of risks — the banana skins — facing the global reinsurance industry.
T
his is according to a biannual risk report by PwC. Entitled Reinsurance Banana Skins 2019, it reveals fears that the industry is grappling with legacy IT systems as new data sources proliferate.
The second-biggest worry is cyber risk, because of the unknown liabilities of underwriting cyber policies, and the threat of cyberattacks against insurance companies that hold valuable data.
about the costs of mounting claims from more frequent and more severe natural disasters, and the prospect that some risks could become uninsurable. Rounding-out the top five is regulation risk, up from eighth place two years ago. This is largely due to concerns about a raft of new rules such as the EU General Data Protection Regulation and IFRS 17. The remainder of the top 10 mostly focus on operating risks.
Closely linked to these worries, the report notes, is the industry’s concern around change “The impact of climate change is at number management. This reflects worries about three, a new entry in the top 20 and noticeably insurance markets being upended by new higher than for the insurance industry as a technologies, and radical shifts in customer whole,” the report states. “From floods to 1 Technology (2) expectations. wildfires, the frequency of events and the severity of reinsurers’ losses are mounting Technology has opened-up a proliferation of as once-sporadic events become almost data from new sources — such as sensors and commonplace. Internet of Things connectivity — while usheringin ground-breaking advances in risk analytics. “Even greater risks lie ahead if climate change The results are revolutionising risk evaluation continues on its current trajectory. Through and prevention. modelling of the vulnerabilities and their impact, reinsurers have a central role to play The big risk for reinsurers was being left in strengthening prevention and resilience behind as the industry transforms, says Arthur worldwide. The industry can also bring hard Wightman, territory leader of PwC Bermuda, numbers to the debate over how to tackle this and insurance leader of PwC in the Caribbean. global threat.” In this scenario, the front-runners recognise that talent and access to data are as important as the Investment performance, at number six, reflects systems themselves in navigating change. worries that low yields could encourage insurers to take greater investment risks to improve POTENTIAL VULNERABILITIES returns. Doubts were raised at number seven on The inclusion of cyber risk so high on the list the list — the industry’s ability to attract and of banana skins reflects the accumulation retain talent, particularly in technical areas. of exposures and risk of unforeseen losses in portfolios on one hand, and the potential Cost reduction (up two positions to 10) and vulnerabilities within reinsurers’ digitalised reputation risk (up five to 13) both reflect the operations on the other. current mood. Political risk is also slightly higher at number nine, with protectionism, “Successful technological transformation isn’t populism and trade wars of particular concern just a systems issue,” Wightman says. “It for the reinsurance industry. demands buy-in and upskilling throughout the organisation. The workforce needs to embrace “Respondents were more sanguine about the change and see it as an opportunity.” macroeconomic environment (11) and interest rates (14), which were down significantly from The third-biggest concern on the list is climate 2017 — although the survey was taken early change — which received its highest-ever score. in 2019 before concern around current interest The reinsurance industry expressed anxiety rate declined,” the report notes. 168
CFI.co | Capital Finance International
Top Ten Risks 1. Technology (2) 2. Cyber risk (3)
3. Climate change (-)
4. Change management (1) 5. Regulation (8)
6. Investment performance (5) 7. Human talent (9) 8. Competition (4)
9. Political risk (10)
10. Cost reduction (12) * PwC’s Reinsurance Banana Skins 2019 (2017 ranking in brackets)
In the bottom half of the table, governance risks were generally seen as under control, particularly corporate governance (18) and business practices (15) — although quality of management is more of a concern for the reinsurance industry. The bottom cluster — including social change (18), capital availability (19), and the UKs departure from the EU (20)—are largely unchanged. The survey also shows the extent to which the reinsurance industry shares risks with the broader insurance community of brokers, life companies, and other respondents. A key difference is that the reinsurance industry places more emphasis on the threat posed by climate change. The score assigned to this