Cybercrime a major risk for insurance companies – study

Insurance companies, including those in Barbados and the Caribbean, have identified the inability to confront change and combat cybercrime as the greatest risks which they will face over the next three years.

A recent survey by the Centre for the Study of Financial Innovation, with support from PricewaterhouseCoopers (PwC), also found that insurance companies in the Caribbean had to grapple with issues such as the impact of the world economy on investment performance in insurance company portfolio, including sovereign debt; the growing threat from cybercrime; excess capacity in the market and regulatory intrusion.

However, it found that Barbados and the rest of the region possessed a lower level of risk and anxiety than their international counterparts, and were “above average” when it came to preparedness.

The Insurance Banana Skin 2017 research was carried out in 52 countries among 836 insurance practitioners to find out where they saw the greatest risks over the next two to three years.

The ability to manage change came in as the number one concern this year, followed by cyber risk, technology, interest rates, investment performance, regulation, macro-economy, competition, human talent and guaranteed product.

The 2015 survey had found that regulations were the primary concerns for insurance executives.

Survey editor David Lascelles said for the first time in six editions of the survey, operating risks posed the greatest threat to insurers, while pointing out that 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,” Lascelles said.

The report raised concerns about the industry’s ability to address the “formidable agenda of digitization, new competition, consolidation and cost reduction it faces especially technology which could transform insurance markets, such as driverless cars, the ‘internet of things’ and artificial intelligence”.

It added that anxiety was rising regarding attacks on insurers themselves as well as the cost of underwriting cybercrime.

Although respondents acknowledged signs of growth, confidence in the recovery was not strong for various reasons including the “slowdown in China, risk of Trump-era protectionism, and popularism in Europe”.

The risk of political interference was seen to have risen sharply. However, Britain’s imminent exit from the European Union was seen to be a minimal source of risk for insurers, particularly those without operations in the UK, the survey pointed out.

PwC’s Insurance Leader for Barbados Bruce McClean said the Barbados insurance industry continued to endure through domestic challenges, which were impacting on both the risks that companies in the sector faced and their performance.

“Not surprisingly therefore, the findings of the study point to macro-economy and investment performance as two of the main areas of concern by those surveyed. Along with cyber risk as another significant area, these challenges will have to be carefully navigated by those in the sector as they seek to continue to try to meet the expectations of their ever more demanding stakeholders,” McClean said.

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