While risk management is at the core of any property and casualty (P&C) insurance company, the rapid pace of change the industry has felt in the past few years has shaken up the efficacy of some of the practices commonly deployed in risk and safety management. As the insurance industry evolves, it’s becoming more crucial for underwriting organizations to proactively create an effective risk management strategy through innovations in technology that are powered by and complement business changes. Organizations must not only innovate in their management of traditional risks, but also consider the impact of macroeconomic factors on their business and stay ahead of new, emerging risks
ESG & Other Emerging Risks
One area that is becoming increasingly important for risk managers to consider is Environmental, Social, and Governance (ESG) risks. Climate change or natural disasters, for example, have the potential to affect virtually every industry, and risk analysts will need to understand the potential impacts on their portfolios in order to make informed decisions. This includes understanding the risk exposures of certain industries, such as the insurance risks of coastal real estate and the risk of supply chain disruption.
Another emerging risk for underwriters to consider is cryptocurrency. As its use becomes more common, insurers will need to understand and manage the risks associated with this new asset class for their own business. This includes evaluating the risks of cryptocurrencies as an investment and pricing policies that provide coverage for theft or loss.
Cybersecurity is also a key concern, as the growing number of data breaches and cyberattacks highlight the potential impact on insurance companies and policyholders. Insurers will need to develop a deep understanding of the potential risks and offer policies that provide adequate protection.
Systemic Risks
As underwriting organizations navigate the evolving landscape of these specific risks and risk factors, it’s also crucial to include the potential impact of systemic risks on their insurance risk management strategy. This includes factors such as supply chain disruptions, geopolitical instability, and energy scarcity. These risks can have a major impact on an underwriting business and should be factored into risk management strategies. For example, disruptions in global supply chains and inflationary pressures can drive up the costs of claims, making it more difficult for insurers to manage their risk.
Another systemic issue that underwriters will need to consider in risk management is the increasing frequency and severity of catastrophic losses. With climate change expected to lead to more extreme weather events, loss control specialists will need to reassess their exposure and develop new risk management strategies, as historical CAT models may not quite cut the mustard at predicting future losses.
To make these “external” factors worse, inside the insurance industry, there is a shrinking talent pool of underwriting professionals and a growing demand for expertise in this field. These stand to significantly impact an underwriting business. To address these challenges, an insurance company will need to invest in talent – insurance careers recruiting, training, supporting, and retaining – all of which likely require investment in not only people but technology.
Dynamic Risk Management
Underwriting organizations that take the time to understand and manage the impact of emerging risks and macroeconomic factors will be better equipped to navigate the rapidly changing insurance landscape. The insurance industry is constantly evolving, and underwriters need to stay abreast of the impact of ESG factors, emerging risks, and systemic risks on their business, and put together strategies to mitigate and even capitalize on these factors.
To stay ahead of the curve, an insurance carrier and company must adopt a Continuous Strategy philosophy, where they are continuously surveying, planning for, and evolving their people, processes, and tools to capitalize on innovation as opportunities arise. This approach will enable them to stay ahead of the curve, reduce risk and not fall behind on macro trends and technology innovation. By focusing on the right factors and continuously assessing and improving their operations, underwriting organizations can set themselves up for success in the years to come.
