For a second year running, cyber risk tops the list of concerns plaguing Australian insurers in 2017, according to an industry survey by PwC.
Findings from PwC’s biennial Insurance Banana Skins report reveal that, despite general positivity around prospects for the global economy, anxiety levels have increased for global insurers, including Australia, since 2015.
Alarmingly, respondents also said they are less equipped to handle risk, with a 15 per cent drop in the self-rated level of preparedness from the previous survey in 2015.
Overall, Australian insurance executives echoed the fears of their international counterparts, revealing similar levels of concern over cyber risk.
Globally, cyber risk was rated as the number two concern for insurers, with ‘change management’ topping the ‘risk list’.
These fears appear to reflect the industry’s broader concerns over the pace of technological change, as well as a perceived inability to address digitisation, competition from insurtechs, consolidation, and cost reduction measures, the survey revealed.
“This pessimism is due entirely to a sharp rise in concern about operating risks, notably advances in technology which are challenging the industry’s traditional structures,” the survey authors noted. “These threats have replaced the economic and regulatory environment as the industry’s chief source of anxiety.”
Cyber risk received an average ‘risk rating’ of 3.80 out of five globally (receiving the most number of ‘5’ ratings in the survey); change management topped the list at 3.82.
‘Cyber risk’ is defined as both the threat faced from direct cyberattacks as well as the company’s exposure to financial losses from corporate network breaches.
Persistent fears over cyber threats indicate the industry’s growing unease over the evolving and unpredictable nature of the digital world and increasing concern over crime and underwriting risk, according to PwC. This uncertainty is unlikely to recede in the near- to medium- term.
“There is some way to go for insurers to be comfortable with their cyber risk management strategies,” the report said.
Despite some congruity between the concerns of Australian executives and their global counterparts, the survey did reveal some notable differences between the groupings.
Curiously, Australian respondents revealed much greater sensitivity to political and regulatory scrutiny compared to their global counterparts, with ‘political interference’ rated as the second greatest concern for local insurers. This may reflect falling levels of trust in insurance providers and financial services in general, the survey authors noted.
PwC conducted the Insurance Banana Skins report in conjunction with the London-based Centre for the Study of Financial Innovation (CSFI), surveying senior members of the global insurance community on their greatest risk concerns in the near- to medium-term.
More than 830 respondents from 52 countries were surveyed for the 2017 report, including 50 Australian executives.
Top Five Risk Concerns for Australian Insurers:
1. Cyber risk
2. Political interference
4. Change management
Top Five Risk Concerns for Insurers Globally:
1. Change management
2. Cyber risk
4. Interest rates
5. Investment performance