If there’s any doubt as to what is currently “the greatest risk” in insurance, a new PwC report in New Zealand will quash it as the study reveals that cybercrime is the industry’s top concern not only globally but also in the land of the long white cloud.
A supplement to the previously released PwC Global Insurance Banana Skins 2021 report, the newly published Exploring the insurance industry’s top risks – A New Zealand perspective takes a deep dive into the findings from the NZ market, which are said to be more aligned than ever with those of the wider poll that involved more than 600 responses from 47 territories.
According to the biennial survey, which was conducted in partnership with US-based non-profit think tank Centre for the Study of Financial Innovation, here’s how the top risks stack up locally and overseas:
|
New Zealand ranking |
Top risks |
Global ranking |
|---|---|---|
|
1 |
Cybercrime |
1 |
|
2 |
Regulation |
2 |
|
3 |
Climate change |
4 |
|
4 |
Technology |
3 |
|
5 |
Human talent |
6 |
|
6 |
Security risk |
13 |
|
7 |
Political risk |
12 |
|
8 |
Pricing |
15 |
|
9 |
Change management |
7 |
|
10 |
Competition |
8 |
“The fact that it’s come out as the number one risk in our survey shows it’s clearly front of mind for insurers,” PwC New Zealand partner and insurance sector leader Karl Deutschle (pictured above) told Insurance Business. “As they evolve their technologies, as they put in new working practices, like they have with working from home – insurers now have call centres where the teams are working from home – they consider the cyber risk as they are doing that implementation, not as an afterthought.
“And perhaps the other thing is, while you hope for the best, you fear the worst so that in the event that you are subject to a cyberattack, you have plans in place to be able to deal with it when it happens, to mitigate the attack and to deal with whatever the implications of that might be – whether it’s a data breach or assets under threat – that you have a robust plan in place on where to get help, who to call, how you communicate with your customers, and so on.”
Deutschle said it’s a risk that insurers certainly have on their radar. According to the NZ supplement, there is clearly a rising level of anxiety around cybercrime risk amid concerns not only about the potential costs of underwriting attacks against policyholders but also the ability of cybercriminals to attack insurers’ technology systems directly.
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“Fundamentally, it’s all about protecting customers’ data for insurers,” said PwC New Zealand partner Ben Coulter (pictured below), who also sat down with Insurance Business. “In terms of the steps that you’d expect an insurer to go through, you, first of all, want to review your existing cybersecurity measures in place for your existing systems.
“That might involve things like penetration testing, to understand the vulnerabilities where cybercriminals could attack existing systems, then you want technology solutions in place to fix any gaps that are identified in those reviews.”
He continued: “Going forward, as insurers more and more are embracing digital technologies right across the board – because that’s the way consumers want to interact with insurers – it’s making sure that cyber risk is front of mind in those future projects so that any new systems developed aren’t creating additional vulnerabilities for customer data.”
To mitigate any residual risk, Coulter quipped, cyber risk insurance can, of course, be purchased.
Meanwhile, Deutschle highlighted: “What was interesting to me this time around was the strong global alignment, particularly with the top five risks. In the early surveys, we had the big Christchurch earthquakes. And while that happened in 2010, that had quite a long impact on the industry, and so natural catastrophes was number one in New Zealand back in 2015.
“Obviously, it’s always a risk that the general insurance sector faced, but it was less elevated in other countries than it was here. And then coming out of that, 2017, there was a concern around reputation, and that’s why reputation was so high (number four in 2017), because it was taking a long time to deal with the claims.
“And then we rolled into 2019,” the insurance sector leader went on to note. “That was the time when the Royal Commission was going on in Australia, where they’re investigating many financial services practices. And the New Zealand market as well – the Reserve Bank and the Financial Markets Authority were looking at the behaviour, in particular, of life insurers, and so reputation (number one in 2019) was very much front of mind here.”
In the 2021 poll, Deutschle said a lot of the significant challenges were “more shared with what’s going on around the globe,” thus the closer alignment now compared to previous findings from NZ.
He added: “I worry a little bit about the number five risk – human talent. For me, that’s something that I think is going to be quite relevant for New Zealand insurers. They have a lot going on; there’s a number of projects dealing with new accounting standards, new regulations. Market forces like climate change, there’s a compliance element to that as well.
“And getting skilled people is challenging at the moment. Partly that’s a function of COVID and our borders having been closed for an extended period of time. People have been able to leave, but they haven’t been able to come in. So, we’ve seen people go overseas, but we haven’t seen the traffic coming the other way in the same volume. So, that’s hard.”
In 2015 and 2017, human talent ranked sixth in New Zealand; in 2019, top 10. Cyber risk, meanwhile, was at number four in 2015, before moving up to number three in 2017 and 2019. Of the five biggest risks in 2021, they are the only two that were part of the top 10 in the past four surveys.
