Most industries were not prepared for the scale of the current pandemic, including insurance companies, and the event has shined a harsh spotlight on insurers and the broader financial industry’s resilience and risk management in the face of catastrophic events. Deloitte’s latest edition of its Global Risk Management Survey has examined insurers’ approach to risk management, and found that while insurers have excelled in key arenas of mitigating risk, there are some sore spots that should be addressed before the next cataclysmic event.
According to the survey, respondents at insurance companies reported that they considered their firms to be extremely or very effective at managing various types of insurance-related risks, including morbidity, underwriting/reserving, mortality, and catastrophe. However, given the current global health crisis, insurance companies will need to stay on top of managing these risks moving forward.
“Insurance companies need to continue to be vigilant in monitoring those risks, especially around the area of mortality and morbidity,” said David Sherwood, managing director at Deloitte, noting that after all, “We’re in the middle of a global pandemic, and we’re also seeing some new and emerging risks come through, like climate and others, where perhaps it’s less clear exactly what the impacts of those [risks] will be.”
Outside of the pandemic, a key weak point when it comes to insurers’ risk management has been geopolitical risk, according to the Deloitte survey, which found that just 48% of insurance respondents rated their institutions as extremely or very effective in managing geopolitical risk. Notably, while many of the respondents to the survey came from global organizations, domestic insurers are likewise not immune to dealing with the repercussions of geopolitical challenges.
“You may be a domestic insurer, but maybe some of your vendors or suppliers are outside [of North America] ... so you may not be writing business overseas, but you might still have service providers that have links into other countries,” explained Sherwood.
There have been many changes in global geopolitical environments as of late, thanks to COVID-19, as well as developments like Brexit. As a result, “Not only are companies’ risk footprints changing, but they need to truly understand the impacts of each of those risks and what those events might actually mean for their locations, their underwriting within those geographies, and the services that are received from that,” explained Sherwood.
To assist in strengthening their risk management capabilities, while keeping costs reasonable, many insurers are looking at applying technologies and insurtech. However, Deloitte noted that implementation of technology by insurers continues to be slow, not to mention that digital solutions and data proliferation can also introduce a host of digital risks. In the case of the pandemic, the insurance workforce widely moved into home offices, which likewise introduced challenges and demonstrated the need for advancement in technology and data connectivity.
“One of the things companies have said is that if they could go back to pre-pandemic, they would have worked harder on their resilience programs. Even though overall they thought they did well, we know that cyber risk and intrusion has certainly grown as a consequence, as has the need for data,” noted Sherwood.
Notably, one of the risks that hasn’t been fully understood yet is the true impact on insurers’ risk profiles of the technology rollout witnessed over the past year as many companies went virtual. While significant progress has been made during the pandemic, the impact of that shift on business strategies, the end customers, products and services, as well as on underlying operations is TBD.
“Since technology is one of the areas that we’ll see continued growth in, I think risk management functions will also have to respond more deeply,” said Sherwood.
