The role of risk managers has undergone a distinct shift in recent years as a series of sharp economic, geopolitical and technological shocks have reset the definition of a healthy approach to risk management. Faced with an expanded scope of responsibilities, risk managers increasingly find themselves tasked with balancing immediate perils, emerging threats and long-tail risks.
The ever-growing remit of risk managers is captured annually in AXA’s ‘Future Risks Report’, the most recent iteration of which surveyed almost 3,500 risk experts from 50 countries to reveal that 75% of them see risk as more interconnected than ever. Some eight months after the report was published, Elie Hanna (pictured) had the opportunity to catch up with clients, peers and brokers from across the market at the 2024 Airmic Conference to understand how the risk landscape has changed.
What was interesting to see, noted Hanna – who serves as chief distribution officer for AXA XL, UK & Lloyd’s – is how many of the themes identified in the report resound just as strongly today. Ranked the number one risk for both the risk experts and the 20,000 or so individuals surveyed, climate change remains a key driver for risk managers.
Risk managers are having to think about how climate risk will impact their portfolios and how to navigate the energy transition. However, they are also having to balance those considerations with internal considerations such as where to base their factories, and the cost implications in the short and long term of those decisions. “Climate risk is becoming a big part of their consideration,” he said, “and with that, we’re having to think about how to support them in better understanding their risks and achieving their ambitions.”
Ranked the second most pressing risk in the ‘Future Risks’ report, it was revealed that one in eight risk experts put cyber at the top of their risks list while 90% said the risk of a massive cyberattack is significant at a global level. With the recent CrowdStrike event underscoring the risks associated with digital supply chain interconnectedness, it’s unsurprising that cyber remains front of mind for risk managers.
Where the change with regards to cyber risk awareness is happening is in the profile of clients raising concerns about their own exposures. While there has been a high level of understanding about cyber risk among large clients with sophisticated risk management practices for many years, there’s now an increasing number of claims and incidents among the lower segments. “Attention to and understanding of cyber risk is becoming vitally important for segments all across the market,” Hanna said. “So, cyber is a key component in terms of where risk managers are putting their focus.”
Ranked third in the report, geopolitical risk is registering on the risk horizon of businesses of every size and scale due to its innate volatility, particularly with half the world’s population going to the polls in 2024. For Hanna, however, geopolitical instability is not just a risk but also an opportunity for the insurance industry to display its resilience as it has through wars, COVID-19 and tumultuous market cycles. Having a very strong insurance industry is very important, he said, and that’s clearest when there’s a lot of instability in the world.
Named in fourth place by risk experts, AXA’s report revealed that artificial intelligence (AI) is alarming experts more than the public who ranked it 11th on their register. Data analytics and innovative new technologies are at the heart of how insurance companies can support risk managers in understanding and mitigating every risk on their risk agenda but it itself also represents an inherent risk. It’s only by rigorous testing that both the benefits and the risks of AI – and particularly generative AI (GenAI) – will become clear, allowing insurance companies to support their clients in understanding the risks and utilising the benefits within their own operations.
In the context of this undulating risk environment, it’s interesting to see its knock-on effects in the market with regards to capacity and rating momentum. In terms of rate, Hanna said, it would appear increases are softening, which is at odds with the pace at which they were increasing just a year or two ago. Looking at AXA XL’s portfolio, he noted that the firm is still very much “achieving the plan”.
“We are where we think we should be, specifically taking into account where property rates are,” he said. “Property rates are still increasing given catastrophe exposures. If you look at liability, specifically with US exposure and all the major cases happening in the US, rate is still holding up there.
“On the specialty side, AXA XL is a big specialty player and we’re seeing some specialty classes continuing with that kind of rate momentum, although it’s deaccelerating in terms of growth. And you have lines of business, like cyber and some others where we’re seeing more competition leading to reductions in rate, particularly in the excess cyber market.”
Looking at the portfolio overall, Hanna highlighted that for carriers like AXA XL, which write across multiple client segments, classes of business and geographic locations, the balance of its book is healthy. On average, he said, the business is where it wants to be and it’s for the benefit of the wider market to keep that healthy balance as sustainable as possible, for the benefit of clients. “What [risk managers] don’t want is to see instability, whether that’s dramatic increases or dramatic decreases, because they can’t explain those to their businesses internally.
“So, we have to be very mindful as an industry to make sure that we’re able to deliver value to the client and deliver on their needs while keeping our terms and conditions, and our pricing momentum where it should be, in order to maintain that sustainable market environment.”
