Technological change and cyber risk have surpassed regulation as the biggest challenges facing the global insurance industry, according to new research from U.S. think tank the Centre for the Study of Financial Innovation (CSFI) and consulting firm PricewaterhouseCoopers LLP (PwC).
The latest survey of more than 800 insurance industry players and observers in 52 countries finds that the global insurance industry's ability to confront structural and technological change is now seen as the greatest risk facing the sector.
Specifically, the insurance industry's ability to adapt to emerging technologies that could transform insurance markets — such as the growth of the "Internet of things," driverless cars and artificial intelligence — along with forces such as intensifying competition, consolidation and cost-reduction pressures, are emerging as the biggest challenges facing the business.
The survey also found that cyber risk now ranks a close second behind technological change, with the industry concerned about both cyberattacks on insurers and the costs of underwriting cyber coverage. Other major concerns include the adequacy of insurers' internal technology systems and new competition — particularly from financial technology firms.
As a result, regulatory risk has fallen down the list of the industry's top concerns. Regulation was ranked as the top threat in the previous three editions of the survey, but it has fallen out of the top five this year.
The list of top risks, which includes interest rates, investment performance and macroeconomic risk, shows that concern about economic instability remains high.
"Although respondents acknowledged signs of [economic] growth, confidence in the recovery is not strong for reasons as widely dispersed as the slowdown in China, the risk of Trump-era protectionism and populism in Europe," the CSFI and PwC say in a statement. "The risk of political interference was seen to have risen sharply. However, Britain's exit from the EU was seen to be a minimal source of risk for insurers, particularly those without operations in the U.K."
In addition, the survey found that concerns about the governance and management of insurance companies, which were top-ranked worries in the wake of the global financial crisis, are now receding.
"For the first time in six editions of this survey, operating risks pose the greatest threat to insurers," says David Lascelles, editor of the survey with the CSFI, in a statement. "Structural and technological changes to the industry could upend traditional business models. At the same time, insurers are grappling with a very difficult economic climate, which helps explain why anxiety is at an all-time high."
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