Analyzing challenges and leveraging opportunities: an insurance conundrum

Even though the industry has shown great resilience during trying times, the road ahead is paved with roadblocks. It was found that most of the insurance revenue in developed countries is derived from higher premium rates rather than the volume of claims. This challenges the industry’s future relevance. But that is not all. Cyber risks, ESG claims and climate change further threaten growth. To find solutions, let’s first get to the root of the major pitfalls faced by the industry.

1.  Cyber security: Insurance companies are often preyed upon by cybercriminals. Ransomware attacks are a common phenomenon, especially if the insurer offers cyber insurance cover. A breach of sensitive B2C retail policy-holder data can result in a series of losses for carriers. In March of 2021, a ransomware attack on a U.S. insurance company led to one of the largest ransom payments ever reported. Access to the company’s mainframe was gained through an employee’s workstation via a malicious browser update. Moreover, PII data such as dates of birth and Aadhar card numbers of individual policy-holders in the carrier’s network or third-party systems can also be misused for malpractice. With more businesses taking to the cloud and hosting data on external servers, the threat of cyberattacks is more real than ever, as are the resulting financial losses.
2. Sustainable insurance: ESG concerns and regulations are forcing more insurers to venturing into sustainable insurance. While opportunities abound, they are also fraught with uncertainty. Insurers will need to adjust their underwriting portfolios in response to increasing pressure to adopt renewable energy sources. Additionally, these developing areas may pose new types of exposures, so claims teams must remain flexible.

    

3. Climate change-related risks: Insurers are significant players in the global effort to combat climate change. With their long-term investment capacity and risk management expertise, they can help others build resilience to climate change. Nevertheless, climate change can also increase insurers’ financial risks, such as higher claims from extreme weather events and a decline in property investments value. In order to cope with climate change, insurers must integrate governance, risk management, investment, and underwriting decisions into their business operations. Otherwise they may become subject to litigation, shareholder challenges, regulatory pressure, and an inability to adapt to changing business and economic environments.

    

4. Crypto-currency risks: The crypto and virtual currency market is in a state of turbulence. Few insurers currently offer crypto insurance coverage, including theft coverage. In order to attract new investors, crypto firms advertise that their policies are backed by insurance companies. It is important for insurers to guard against losses caused by the activities of the insured who may be involved in cryptocurrencies, and to prevent policyholders from filing claims for cryptocurrency losses.

    

5. Inflation risks: While global inflation has declined steadily since 2022, it has left a lasting impact on insurers. Rising claims costs and increased operating costs have caused insurers to hike premiums, impacting consumers negatively. This can result in consumers dropping coverage altogether due to increased costs. Furthermore, inflation can also cause insurance companies’ investments to lose value, affecting their solvency.

    

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