Risk assessment is almost second-nature to insurance professionals. As insurers adjust to a new environment of lower asset returns and stricter regulation, macroeconomic trends and a slow growth rate top the industry’s risk agenda.
Based on a poll taken by executives at over 65 insurance companies across the world, who shared their perspectives and insights on the factors influencing the insurance industry for the next five years, the top 10 hidden risks confronting the industry which are:
1. Macroeconomic trends:
For investors, there is no simple way to view the global economy. We are now seeing multiple, divergent macroeconomic trends and insurers are constantly on the lookout for ways to deal with the current ongoing slow growth.
2. Government Regulation:
An extensive set of new regulations and government policies are rising as a major risk source.
3. Corporate Governance Failures:
With the regulatory change, stakeholders query confidence in corporate governance. Some events exceed the capacity of the insurance industry and governments to respond to, with physical and social implications.
4. Eurozone Debt Crisis:
Factoring in the global repercussion of the crisis, nonpayment by a big sovereign borrower causes market panic and disrupts the world economy.
The recent impact of tax and accounting changes are closely linked to regulation risk.
6. Natural Disaster
Natural disasters such as major tsunamis, earthquakes, hurricanes, flooding or volcanic eruptions with major global effects cause business interruption, death on a massive scale, property damage, and supply-chain failures.
7. Banking Crisis
National or central banks’ inability or unwillingness to supply liquidity in the next crisis, causing banking and real economic activity to stop. The availability and cost of capital are also a continuing concern as it relates to attracting investors.
8. Economic Depression
A protracted and dip in economic output, massive increase in unemployment, restriction of credit and shrinking investment.
9. Technology, Cyber-risk, and Data Security:
Much of the private, government or business data stored in clouds are usually hacked, compromised or misused. Insurers are concerned about how to contain this growing threat of cyber-warfare, omputer sabotage or espionage on a major scale, with severe damage to infrastructure, financial, medical or defense systems.
10. Talent Recruiting Skills:
Acquisition and retention of skilled and talented hands pose a serious challenge to insurers.
In the search for revenue and growth, insurers must maximize capital and asset liability tactics, stay competitive with cost, while not losing sight of their clients’ needs. Adjusting to growing market and regulatory change will be a hurdle that requires using new technologies and building flexibility into all aspects of the business.