The most important global business risks and their impacts on the insurance industry

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Explore the most important global business risks for 2023 and their impacts on the insurance industry

Earlier this year, the international corporate insurer Allianz Global Corporate & Specialty (AGCS) released the 12th Annual Allianz Risk Barometer. The survey takes a look at the top global business risks, based on data from more than 2,700 respondents from 94 different countries and territories. Respondents include Allianz clients, brokers, industrial trading organizations, risk advisors, insurers, senior managers and claims experts, among other risk management professionals.

So what worries business leaders the most today? Not surprisingly, the pandemic and the resulting supply chain shortages, delays, and high inflation have had a significant impact on the current risk outlook. Macroeconomic developments ranked third on the list of biggest business risks for 2023, pushing climate change and natural disasters further down the list. For the second year in a row, cyber incidents and business interruptions ranked first and second. Energy crisis, political risks and violence were all new to the list this year, coming in at number three and ten, respectively. Here are the top 10 global business risks for 2023 according to the survey:

  1. Cyber ​​incidents (34 percent of respondents)
  2. Business disruption (34 percent of respondents)
  3. Macroeconomic developments (25% of respondents)
  4. energy crisis (22% of respondents)
  5. Changes in legislation and regulations (19 percent of respondents)
  6. natural disasters (19% of respondents)
  7. Climate change (17 percent of respondents)
  8. Shortage of a skilled workforce (14% of respondents)
  9. Fire, explosion (14 percent of respondents)
  10. Political risk and violence (13% of respondents)

While the purpose of insurance is to help individuals and businesses manage such risks, the industry is not immune from the consequences of these threats. Let’s take a look at three of the top ten risks, their impact on the insurance industry, and how industry leaders can respond.

1. Cyber ​​incidents

Since the first danger for two years in a row, we have to start with cyber incidents. The definition of a cyber incident is broad and includes everything from IT outages to ransomware attacks to data breaches. With many industries embracing digital solutions as a result of pandemic-related lockdowns, cybercrime is currently at an all-time high. This, along with a growing shortage of cybersecurity professionals, leaves business leaders facing an increased possibility of attack.

Not only can a cyber incident lead to major expenses and business interruption, but it can also cause reputational damage when potential customers are affected and take their business elsewhere. Much of the threat comes from cybercriminals who are finding newer and faster ways to breach standard security defences. While companies of all sizes are vulnerable to cyber incidents, small and medium-sized businesses that lack modern cyber security technology are often easy fruits for hackers.

Cyber ​​accident risks through the lens of insurance

Data is the bread and butter of the insurance industry. Insurance companies typically contain data for their customers, producers, and employees ranging from names, addresses, and birthdays to Social Security numbers, credit card information, and health history. For a large number of organizations, this information is on the Internet, often in unstructured formats such as emails and spreadsheets.

Telecom companies that fail to protect their data run the risk of falling victim to a cyberattack. Most people hear the words cyber attack and immediately think of identity theft. While this is a very real and dangerous consequence, it is just the tip of the iceberg when it comes to the negative effects of a cyber hack. If a hacker infiltrates your insurer, you also risk:

  • Public exposure to proprietary information
  • Data manipulation
  • data loss
  • Financial loss
  • ransom
  • the work is stopped
  • Damage to reputation
  • Regulatory actions

How can insurance professionals prepare for the risks of a cyberattack?

While it takes to strengthen your defenses in cybersecurity, hackers are enhancing their knowledge and skills to outrun them. The best defense against a cyberattack is to adopt a comprehensive approach to cybersecurity that ensures that your technology, people and partners are prepared for the attack.

technology Keeping your hardware and software updated is essential to preventing a cyberattack. No matter how advanced your agency, carrier, or MGA/MGU is when it comes to cybersecurity, outdated technology can open you up to vulnerabilities. For tech-savvy organizations that operate across multiple platforms and connected devices, a no-trust architecture like multi-factor authentication has become standard practice.

the people Humans make mistakes. Your employees are vital to the success of your insurance business, but they are also one of your biggest cybersecurity liabilities. But with consistent training, your employees can become a solid defense against cyberattacks. Ensure that employees are informed of any potential threats and provide them with the resources and knowledge they need to help prevent an attack.

partners – The success of your insurer’s data security also depends on the security and willingness of any downstream or upstream partners you work with, as well as any third-party vendors or software you use. As a best practice, you should periodically check the cyber security of your partners and software vendors, to make sure they are up to your standards.

Remember that taking this 3D approach to cyber security will not reduce your chances of a cyberattack, but it can strengthen your defenses and reduce any losses caused. If your insurance company He is When you experience a cyber security attack, you should understand that you may be required by federal law to report the incident.

2. Macroeconomic developments

Three years after the initial outbreak, the pandemic is still affecting the global economy. These effects combined with supply chain disruptions, geopolitical turmoil, increased frequency and severity of natural disasters, and high inflation rates are forcing individuals and companies across all industries to cut spending in fear of an impending recession.

As a result, companies across multiple industries are struggling to stay profitable and global defaults are expected to rise by 19 percent in 2023. Given these factors, it is not surprising that macroeconomic developments rank high on this year’s risk gauge.

How do macroeconomic developments affect the insurance industry?

Although you may have heard the industry described as “recession-proof,” insurance is actually not immune from the effects of market changes such as rising inflation. In response to economic uncertainty, the insurance industry is currently facing challenging market conditions including increased premiums, stricter underwriting guidelines, and reduced risk capacity in an effort to avoid bankruptcy.

In fact, the insurance industry is currently facing the toughest market in a generation with rising inflation putting a lot of pressure on the P&C market in particular. Rising costs for building materials and labor drive up claims costs, causing insurers to pay out more money than they take in in premiums. With the increasing frequency and severity of natural disasters, common safety nets such as reinsurance and CAT bonds are being pushed to their limits.

How can the insurance industry respond to macroeconomic development risks?

With costs rising across the board due to inflation, insurance agencies and carriers need to find ways to reduce operational costs and stay on the path to profitability and away from insolvency. One area for improvement – operational efficiency.

Manual processes such as filling out forms and tracking license renewals manually drive workflow inefficiencies by distancing employees from more revenue-producing tasks and eliminating profits from the organization. Automating these tasks frees up agents and employees, allowing them to devote more time to helping clients and building stronger partnership relationships.

3. Shortage of skilled labor

At number eight on the risk scale is the talent shortage that many industries are currently facing. As a result of this pandemic, a large number of workers have opted for early retirement. While the rising cost of living has led to some retirees returning to the workforce, a large number of job openings remain unfilled.

Attracting and retaining top talent is proving to be a challenge across the world with the aerospace, engineering, construction and professional services sectors taking some of the biggest hits. Many point to the shift in employee expectations as a result of the pandemic as a driving factor for this problem. Employees now expect more from their employers in terms of health and safety, benefits, flexible hours, and remote working options.

How is the talent crisis affecting the insurance industry?

The insurance industry is no stranger to a talent shortage. In fact, we’ve written about it once or twice already. Although you may be tired of hearing about it, it is still a very real problem with real implications for the future of the industry.

Like it or not, insurance is hit hard by labor shortages. The problem is mainly due to the large number of insurance professionals who have reached retirement age and left the workforce. Replacing these individuals has proven difficult, particularly with a younger generation that lacks industry knowledge and interest.

Bridging the talent gap in the insurance industry

When it comes to dealing with a talent crisis, insurance companies can rely on two different strategies. One option is simply to place more responsibility on the remaining employees. However, this is only a short-term solution, and we doubt your employees will respond well to the increased workload. The best solution would be to combine attracting young talent with transforming your talent strategy.

appeal to the younger generation In order to close the talent gap, insurers will need to find ways to attract millennials and Gen Zers to the industry. A big part of the puzzle will convince these younger generations that working in insurance is worth it.

Many young people still think the industry is rigid and old-fashioned. Show potential applicants that this is not the case by offering a more comprehensive benefits package, including remote working options and mental health resources. You can also attract a generation of digital natives by implementing modern technology solutions to make your workload more exciting and fulfilling and less tedious and boring.

Refine existing talent If hiring new talent is too difficult or expensive, look no further than your existing workforce. Instead of looking for new people to fill the gaps, agencies can hone the skills of their back office staff to take on more meaningful roles by offloading their tedious manual work to an automated solution. Once employees stop manually entering and re-entering data, they will have more time to develop the skills needed to fill job openings.

Each of the top 10 global business risks of 2023 has the potential to seriously disrupt the insurance industry. It is important that insurance leaders understand these risks and feel prepared to take them head on. A common thread in risk mitigation, including the three we discussed in detail and many others around the risk scale, is modernizing your agency, carrier or MGA/MGU technology stack to include modern and automated solutions.

Want to know how AgentSync can help carriers, agencies, or MGA/MGU mitigate risks such as managing broker compliance, changing product lines, and more? Watch the show today!

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