Analysts at AM Best have argued there are significant opportunities available to re/insurers that are quick to innovate amid increasingly complex market conditions.
In a new report, the rating agency reflected on the shifting risk landscape in the re/insurance market, which is being increasingly influenced by technological advancements, as well as the growth of emerging and intangible risks.
“Over the past decade, environmental, technological and social trends have driven the rapid evolution of the global risk landscape in which insurers and their policyholders operate,” analysts noted
“Risks are becoming more complex and interconnected,” they added, flagging in particular challenging trends related to cyber, non-damage business interruption, regulation and reputation.
At the same time, AM Best observed changing climate trends and higher concentrations of assets and lives in vulnerable areas that are increasing the costs associated with natural catastrophes.
The COVID-19 pandemic also has provided a clear demonstration of how interconnected global risks have become, and has served to accelerate existing trends affecting the risk landscape such as digital transformation and the shift to business models based on intangible assets.
But AM Best believes existing coverage gaps, as well as new risks and changing protection needs, present a significant opportunity for insurers.
Addressing these protection gaps through new and innovative products and risk management solutions will be critical to the industry’s success and relevance over the longer term, it suggests.
“Globally, we are observing growing business complexity, shifting market dynamics and technological advancements, which together are challenging insurers. But there are also opportunities for the industry,” AM Best stated in the report.
“If, through analysis of more complete and reliable data, it is able to better understand risk drivers, their interdependencies and the potential consequences should a loss materialise, the industry will be in a position to develop new products that better address the evolving risk transfer needs of clients,” analysts explained.
“There are also opportunities for insurers to offer more than just pure financial protection through the provision of risk insights and risk management tools and services.”
In AM Best’s view, innovation is critical to the long-term success of all insurers, as firms seek to develop sustainable competitive advantages and better respond to external challenges.
But it also warned that, in an increasingly digital and connected world, there is higher potential for significant accumulation of risk.
As the risks presented by individuals and businesses evolve, AM Best believes insurers’ understanding of risk drivers and their potential for accumulation must also evolve, if they are to maintain financial strength.
