A new study by Ernst & Young has revealed the top-ten list of risks for the insurance industry, and at the top of the list, impacting the property/casualty segment of the industry the most, is climate change, which is closely followed by demographic shifts, which most affects the life and health insurance segments of the market, but many of the risks on the list are intertwined.
For this year’s study, Ernst & Young teamed with Oxford Analytica to interview more than seventy analysts from around the world in an attempt to identify emerging trends that will drive global insurance performance over the next several years. Risks were identified in three general categories: macro, sector-specific, and operational threats. The list was then honed to find the top ten risks, plus five more emerging threats.
According to the analysts who were interviewed, these risks must be managed by insurance industry leaders in order to maintain competitive positions, and they may change the way companies do business, including what services are offered to their customers, and how those offers are made.
- Climate change: long-term, far-reaching and with significant impact on the industry.
- Demographic shifts in core markets: offers business opportunities but risk that other sectors will capitalize first.
- Catastrophic events: rising costs and serious impact on earnings for insurers.
- Emerging markets: risk and opportunity but competitive threat from new players.
- Regulatory intervention: increased scrutiny impacting on operations and practices
- Channel distribution: technology is changing the way insurance is sold and purchased.
- Integration of technology with operations and strategy: an enabler to keep pace with competition but lack of integration is a threat at the strategic business level.
- Securities markets: changes in capital providers and the way capital is entering the insurance industry are causing major changes in the industry.
- Legal risk: significant and unexpected change in the legal environment, such as government legislation or evolving case law, will continue to have a critical impact on the insurance industry.
- Geopolitical or macroeconomic shocks: likely causes unknown but consequences potentially severe.
Why is the identification of these risks important? Peter Porrino, global director of insurance services at Ernst & Young explains, “Understanding how to respond to current trends is paramount for insurers as they seek to manage risk, optimize performance, and increase operational effectiveness. The top three risks � climate change and demographic shifts in core markets, and catastrophic events � are far reaching social and environmental trends with complex long term ramifications for the industry as a whole.”