A poll of more than 900 insurance industry experts reveals that the very urgent need for business and technology modernisation is the greatest threat to the global insurance sector.
A survey and accompanying report from The Centre for the Study of Financial Innovation and PwC finds that ultimately, survey respondents expressed concern that they are weighed down by legacy business models and IT infrastructure that is poorly equipped to handle the changing demands of the industry.
The rise of technology and its increased focus on the insurance industry has come at a time when market participants are looking to leverage new tech not only to access new lines of business and geographies, but also to improve the efficiency of their business models in an effort to lower costs and better meet client demand.
However, the cost of overhauling old systems and integrating new technology is as high as the necessity of adapting and transforming to meet the demands of clients in today’s increasingly interconnected and digital world. What’s more, it’s no simple task and as the report highlights, is a growing concern for re/insurance industry experts.
Following technology, PwC’s 2019 Insurance Banana Skins report finds that threats posed by cybercrime are the second biggest threat to global insurers and reinsurers. The report suggests that the insurance industry is highly susceptible to cyber attacks due to the volume of data it holds, with many of these attacks being highly sophisticated.
“Operational risk continues to be the key category of risk occupying insurers’ boardroom conversations. While there is a pressing need for better and efficient technology, in the era of digitalisation, the threat of cybercrime has become ever more prominent. Linked to this is the risk of change management, questioning whether insurers are embracing such changes in technology and the virtual world.
“As always, the successful management of change is dependent upon how it’s perceived – do these risks present an opportunity for insurers to proactively overhaul legacy systems for a more customer centric innovation or cause a disruption that requires a reaction to remain relevant? Either way, the need to upskill the workforce to face these opportunities and challenges, however it is perceived, is in critical demand,” said Andy Moore, Global Insurance Risk & Regulatory Leader, PwC.
After tech and cybercrime, change management is underlined as the third biggest concern for insurers across the globe. The risk that inadequate response to change management will damage insurers remains an urgent concern, with demand for implementation being driven by artificial intelligence, the Internet of Things, and evolving customer expectations that are extremely different than in the past.
Global Insurance Leader at PwC, Stephen O’Hearn, said: “In 2017 we saw regulation drop overall with change management rising as the top risk. Two years on, the sector is projecting a rise in the threat of regulatory risk. This has been driven by new areas of regulation introduced since 2017 including General Data Protection Regulation (GDPR) in Europe and various new conduct standards across the globe.
“The pressure applied by upcoming new accounting standards, particularly IFRS 17 has amplified the issues. The task of addressing and implementing these new regulatory standards, in the mandated timeframe, is proving to be a challenge for insurers everywhere.”
The ongoing challenges of tech and cyber risk were the most pressing for all sectors and regions, including life insurance, composite and also reinsurance. Climate change also featured high in all regions with the exception of the Asia-Pacific, while regulatory risk was also a concern for most regions, excluding Latin America.
Interestingly, the threat of Brexit fell this year as the majority of respondents outside of the UK and the EU believed they were insulated from any potential fallout. At the same time, and somewhat unsurprisingly in light of the widespread confusion that is Brexit, respondents from the UK remain very concerned about the country’s impending departure from the European Union (EU).