With IT security breaches and new malware threats making the news on an almost-daily basis, insurance executives are increasingly concerned about the impact cybercrime may have on their bottom line in the coming years.  In fact, the risk exposures they face in the virtual world are more troubling to them at the moment than those in the physical world — including political terrorism and climate change.

That’s the consensus among industry executives polled at this year’s annual meeting of the Property Casualty Insurers Association of America, which was held in Scottsdale, AZ October 26-29.  About 40 percent of event attendees surveyed ranked cybercrime as the industry’s “most threatening emerging risk,” followed by terrorism (31 percent) and climate change (29 percent).

When it comes to more structural threats to business growth, underwriting issues topped the list this year as they did at least year’s event in Boston.  However, concerns about underwriting were down somewhat at 30 percent, compared to 35 percent a year ago.  This may be at least in part due to a wave of upgrades in underwriting systems, as well as optimism about the potential improvements in actuarial accuracy to be gained through big data and increasingly sophisticated analytics.

On the other hand, despite indicators of continued economic recovery, concerns about global markets were up from 12 percent last year to 19 percent this year.  And regulatory concerns rose to second place on the list at 22 percent, though these may be driven more by the increased zeal shown lately on the part of some agencies than it is by greater stringency in the regulatory landscape itself.

Betting on New Products

On the upside, insurance and reinsurance leaders are again showing signs of hope this year about finding new profits in new products, with 40 percent citing this as their no. 1 opportunity for business growth, compared to just 24 percent last year.  Some of this hope may arise from technological developments such as vehicle telematics, which is enabling insurers to bring new types of usage-based insurance (UBI) policies to market.  In addition, growing public awareness of emerging risks, from cybercrime to potential global pandemics, is creating a variety of new market opportunities for innovation-minded insurers.

Insurers’ eagerness to pursue growth through geographic expansion, on the other hand, has dimmed a bit.  Such expansion led the list of perceived opportunities last year, with about one-third of insurance executives giving it their vote.  This year, that level of interest dropped to just 23 percent.

Global economic doldrums could be partly responsible for this flagging enthusiasm about expansion into new markets.  Europe’s economy is fairly moribund, and growth in much of Asia is flagging as well.  At the same time, many insurers who recently attempted geographic expansion also have encountered regulatory and taxation issues that may have taken the edge off their former eagerness.

Despite shifts in perceived threats and opportunities, industry leaders remain bullish on two key areas of investment: technology and talent.  Both were cited this year and last year as top budget priorities.

“The insurance industry continues to see significant opportunities to aggregate and analyze massive amounts of data and harness this information quickly to respond to changes in the market and gain a competitive advantage,” said Andrew Marcell, managing director and CEO of US Operations at Guy Carpenter, which conducted the survey.  “Big Data without analysis and interpretation, however, is just noise.  This is where having strong talent and strategic partners becomes critically important.”

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