The biggest risks facing insurers: a view from the top
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In a world of social, ecological and economic uncertainty today’s insurance businesses face diverse challenges, but remaining relevant to clients might be the greatest risk of all
Over a third (37%) of insurance CEOs think their organisation will no longer be economically viable in 10 years, if it continues on its current course. This startling headline stat is taken from a recent global CEO survey carried out by PwC.
Together with PwC we thought that such a level of existential risk potential warranted further examination, as part of our Ahead of the Curve webinar series. In Episode One (available here) several of the insurance industry’s most prominent CEOs give us their personal take on what they believe are the greatest risks facing the sector today.
Strikingly, the fundamental relevance of insurance to their customer base and also the double-edged effect of new technology pose the biggest threats to insurers, according to the thought leaders on our panel.
For Aon president Eric Andersen the overriding risk of irrelevance derives from an increasingly complex risk register. “With all that's going on in the economy, whether it's climate, whether it's intellectual property, whether it's regulatory change, our ability to continue to innovate, to create new products to bring new services to our clients, effectively stay one step ahead of where the economy and where these issues are going, is vital to us being able to provide the advice and products for them that help them with their business,” he said.
“And so that push, that constant need to stay ahead and be more creative, I think, is ultimately our biggest risk: that [if] we don't do it, we fall behind.”
Veteran risk professional Paul Brand, CEO of Convex, agreed that the industry faces a host of financial and shock loss scenarios. And he also believes that the industry’s relevance in the eyes of clients and employees will be determined by the way insurers respond to any of them: “Picking a single largest risk, I think would be difficult. We have to navigate all of them, we have to prepare for what’s around the corner… and make certain we’re around to serve our clients and customers.”
Arthur Wightman, territory leader of PwC Bermuda, stressed the stabilizing role played by insurers in society and the capital markets: “In the context of climate change and socio-economic equity, the insurance industry plays a critical part in providing insurance to the world as it transitions from the current environment to hopefully a more sustainable planet.”
Do or die tech disruption
New technology and artificial intelligence pose specific industry game-changing risk and opportunity in equal measure according to other CEOs on the panel.
Vantage Risk CEO Greg Hendrick pinpointed the critical potential of AI within the specialty insurance and reinsurance marketplace.
“There is so much more information being generated every second in the world today. And we've now reached a point where human beings just can't consume everything that's available to them. And so we really need to use these [AI] tools to winnow down all the available information into better insights to allow our people to make better decisions,” Hendrick said.
“So for me, the biggest risk is if we don't embrace that as fast as we can in an appropriate and in a safe way. We need to really get after that quickly.”
Mosaic co-CEO Mitch Blaser feels confident that the insurance industry can cope with the sort of macro socio-economic dislocation often identified as a killer risk. But he believes that the industry must make sure it fully understands the potential risks surrounding machine learning techniques, as well as the gains.
“I've been thinking more about the impact of generative AI, and not only the benefits that one can gain from proper deployment, but also the threats that it represents to the way we do our business,” Blaser said.
“We were fortunate as a new company to be able to not have the legacy issues that others might have. So, we've been very focused on how we can use AI to our benefit. But I think that the insurance industry overall is going to have to come to grips with how to harness the power of generative AI, and also protect its customers and clients from it. Let's call it the bad actors that will use it in a negative way.”
The effective deployment of fast evolving, next generation technology could decide the fate of individual insurance players and maybe the sector as a whole, according to PwC’s Arthur Wightman.
With the deployment of generative AI, advanced robotics, and powerful data analysis capabilities, insurers can harness new technologies that will deliver improved underwriting decision making and ultimately better outcomes for shareholders and society, Wightman said.
“But I also equally fear that if they don't, the industry could get left behind. And in fact, the industry ultimately could be disintermediated by a different industry group or others focused on solving the problems of risk management.”