A new report by pension, insurance and investment consultancy firm Lane Clark & Peacock LLP (LCP) has found that climate change and cyber risk are seen as the main rising priority areas for re/insurance firms.
An analysis of early Solvency II disclosures by 50 re/insurers across the UK and Ireland found a big change in the risks which most concern the industry.
Notably, 52% see cyber security as a key risk, up from 46% last year, while 46% of firms cited climate change, significantly up from 18% last year.
In contrast, only 30% of re/insurers identified Brexit is a key risk, which was down significantly from 60% last year.
LCP also found that a key new risk for re/insurers is ‘unanticipated coverage’ where firms find that they face claims for risks that they had previously believed to be not covered by their policies, particularly in light of the Covid-19 crisis.
Additionally, the market is increasingly concerned about ‘conduct risk’ or the risk that regulators will take further steps with major financial implications following the publication of the FCA’s interim report into general insurance pricing practices.
Despite Covid-19 related uncertainty, over half of re/insurers (52%) did confirm they expected to continue to meet regulatory capital requirements, while 48% either remained silent or said there was still too much uncertainty to confirm if they would be able to meet the requirements.
Other findings suggested that most companies continue to be sufficiently capitalised with eligible own funds that are, on average, nearly double their Solvency Capital Requirement (SCR) at their 2019 year ends.
Overall, 85% firms mentioned Covid-19 and its possible impact on claims experience and 54% mentioned the impact that market turmoil as a result of the pandemic is having on their investment holdings.
“This analysis provides an interesting early view into how Covid-19 has shifted the insurance landscape,” said Cat Drummond, Partner in LCP’s Insurance Consulting team.
“Concerns around the impact on claims experience and investments are rightly top of the agenda. The impact of the pandemic will have severe fallout for a number of business lines including travel, business interruption and income protection,” Drummond continued.
“Brexit appears to be less of a key risk in the minds of insurers as it is replaced with concerns around cyber-crime and consumer protection. The issue around consumer protection is likely to rise even further up the agenda when the FCA publishes its final report into the pricing of home and motor insurance.”