The latest iteration of ‘Reinsurance Banana Skins’, biennial research carried out by PwC and CSFI reveals reinsurers’ views on the urgent risks they face. Launched this morning at an event hosted by PwC and Swiss Re Reinsurance Solutions at the Rendez-Vous de Septembre in Monte Carlo, the survey results show respondents from the reinsurance sector identified climate change as the most significant risk they face.
Survey respondents were asked how well prepared they thought the industry was to handle the risks they identified. On a scale of 1 (poorly) to 5 (well) reinsurers gave an average response of 3.41, above the average of 3.20 and the highest of all sub-sectors (composite 3.38, life 3.14, P&C/ non-life 3.13).
Reinsurers have long been at the forefront of developments in data and analytics and this optimism could reflect their confidence around their ability to harness the power of new technology.
PwC sees wide-ranging impacts for reinsurers resulting from the risk of climate change – pricing, legal liabilities, changing consumer behaviour alongside the challenge that the transition to net zero poses to reinsurers’ own operations.
Andy Moore, PwC UK partner and London Market leader, commented on the results:
“Reinsurers are acknowledging that the effects of climate change are already being felt. Combined with the fact that reinsurance is the most optimistic of all the insurance sub-sectors when assessing its preparedness to handle risks, these results make the case that now is the time to think differently and find solutions.
“It’s impossible to fully prepare for such a fast-changing and unpredictable risk, but the sheer scale of the impact on almost all areas of the market means doing nothing is not an option. Well-run companies are already taking action to enhance risk modelling, re-assess the resilience of their portfolios and implement strategic risk management reviews. Due to the ever-changing nature of this risk, companies need to put controls in place to ensure they have confidence in the data, infrastructure and policies they will rely on to remain agile in the face of the climate emergency and its repercussions. Doing this will put reinsurers in the strong position they need as they play a key role in managing the wider global transition to net zero”
Cyber crime, technology, human talent and regulation complete the top five risks facing reinsurers
Ranked as the top risk across the wider insurance sector as a whole, the operational risk associated with cyber crime comes second on the list of the urgent risks facing reinsurers. Respondents worried that a successful cyber attack could jeopardise business continuity, and that the theft of sensitive data could have disastrous reputational consequences.
Third in the list is technology, with reinsurers showing concern about their ability to keep up with the pace of technological change, with respondents voicing fears about the cost, as well as keeping up with the advancements and investment made by their peers.
Concern about the difficulty of attracting and retaining talent makes the top five risks again, with respondents highlighting a particular worry about the acute challenge of finding people with the relevant technical and technological skills.
Regulation rounds off the top five risks, with respondents voicing concern about the cost and burden of concurrent waves of regulation. Climate change, and the broader ESG agenda, is also driving regulators to deploy expanding toolkits to enforce change across the globe.
Reinsurers vs. the wider insurance industry
Compared to their counterparts in other areas of the insurance market, reinsurers showed considerably lower than average concern about their sector’s ability to achieve cost reductions to remain competitive, and its ability to manage change.
On the other hand, reinsurance was the only sector to place de-globalisation in its top ten risks, possibly reflecting the global nature of this segment of the insurance industry, and its concern about protectionism. The sector was also more concerned about availability of capital, and credit risk, reflecting some of the challenges seen in the market over the last year and the recent implications of some alternative capital structures
There was a note of concern about the reinsurance sector in the responses from other sectors, particularly as regards to capacity and credit strength in the face of large catastrophe claims. Access to reinsurance was also identified as a risk. The outlook was seen to depend on whether capital would shy away from the sector, or be enticed by hardening rates.
Andy Moore, PwC UK partner and London Market leader, continued:
“Although categories are helpful in identifying trends, the risks facing our industry are becoming increasingly intertwined. AI has the potential to make cyber crime more sophisticated and complex, climate change will lead to regulatory upheaval, and the central role technology now plays means talent shortages appear more stark than ever. Arguably the biggest risk we all face is not taking action but, with its experience in assessing risks, scenario planning and analysing ever-changing data, the reinsurance industry should have confidence in its ability to innovate and overcome.”
Russell Higginbothan, CEO of Swiss Re Reinsurance Solutions, commented:
“To grow and advance insurance offerings in a world with increasing climate volatility and rapidly evolving risks, data and tech-driven solutions play an important role. This is where Swiss Re Reinsurance Solutions comes in, offering primary insurers a broad range of services and tools that cover the entire insurance value chain.”