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Digital EditionThese 3 Risk Categories Worry Brokers and Risk Managers the Most
Rapid technological advancement is reshaping the risk landscape for businesses of all shapes and sizes — and the carriers that insure them. A recent survey produced by international specialty insurer Argo Group queried 200 insurance brokers and 150 small- to medium-sized businesses (SMEs) in the UK and U.S. about the top risks on their radar.
Though opinions diverged on some specific threats, technology was the common thread linking nearly every top risk.
1) All Things Cyber and Tech-Related Liability
All 200 brokers and 126 SMEs ranked cyber threats as a medium or high priority risk over the next year. The survey does not specify, however, what “cyber threat” means to the respondents. Given the many shapes and forms of cyber risk, the category is broad and could encompass everything from a breach of private data, a ransomware or denial-of-service attack, or any type of system shutdown or network failure.
Concern over cyber is not limited to the direct impact to respondents’ respective companies. Forty-nine percent of brokers ranked Russian cyber hacking as the biggest potential global threat to their clients.
The speed of development makes it hard for businesses to evaluate all the risks; by the time risk managers get a handle on the implications of one piece of technology, a newer version has emerged.
Behind cyber, brokers were most concerned about the Internet of Things, drones and blockchain technology. All of which carry an element of cyber risk. SMEs were most concerned with virtual technology, the IoT, and climate change. Seventy-eight percent also said they believe automation and artificial intelligence will create new liabilities.
With the exception of climate change, these concerns reflect an uncertainty that perhaps stems from the pace of technological change and the inability to know where it’s going next. The speed of development makes it hard for businesses to evaluate all the risks; by the time risk managers get a handle on the implications of one piece of technology, a newer version has emerged.
Despite the acknowledgement of cyber as a high-priority risk, SME responses indicate that they may be underprepared. Sixty-one percent said that they do feel prepared, and yet 43 percent reported they did not plan to buy cyber insurance. Other surveys back this up. According to Hiscox’s 2018 Small Business Cyber Risk Report, “sixty‑six percent of small businesses said they were concerned or very concerned about cyber risk. Yet the vast majority haven’t taken the basic steps to prepare. Fifty percent said lack of budget is a challenge or a major challenge.”
2) The Underwriting Talent Gap
Technology — or lack thereof — may also play a role in one of the greatest risks facing the insurance industry today: an underwriting talent shortage. According to Argo’s report, 35 percent of brokers say slowness to innovate is a factor making the industry appear less attractive to younger workers.
“Across the board, there is some reluctance among both brokers and SMEs to innovate with new technology,” the report states, citing cost as the greatest barrier. Forty-five percent of brokers and 41 percent of SMEs listed cost as the primary roadblock to implementing new tech.
At a time when risks emerge and evolve faster than ever, lack of underwriting talent devoted to understanding these exposures will exacerbate the industry’s greatest vulnerability.
However, 32 percent of brokers also said that a general lack of knowledge about the insurance industry is also driving the talent shortage, suggesting that greater efforts must be made to engage students before they enter the workforce.
At a time when risks emerge and evolve faster than ever, lack of underwriting talent devoted to understanding these exposures will exacerbate the industry’s greatest vulnerability.
3) Geopolitical Instability and Climate Change
Tech-related risks, however, are not the only areas of concern. An unstable geopolitical environment weighs heavily on the minds of both brokers and SMEs. In addition to Russian hacking and election interference, brokers also ranked the trade war between the U.S. and China (45 percent), terrorism (43 percent), America’s divisive political climate (42 percent), a deteriorating relationship with Iran (26 percent) and escalating tension with North Korea (22 percent) as major global threats.
SMEs were less concerned with geopolitical risks than they were with climate change. Sixty-seven percent of SMEs said they were cognizant of the long-term impacts of climate change, compared to 47 percent of brokers.
Indeed, losses from natural catastrophes and extreme weather has been rising steadily, with the expectation that they will only continue to grow. According to a report by Scientific American, “The insurance industry is among the most exposed sectors of the global economy to the effects of climate change, and those risks could grow as coastal cities expand.” In 2017, total financial losses from natural catastrophes in both the private and public sector hit $134 billion.
