Concerns about cyber risk have become the biggest concern for Australian insurance companies, jumping from 19th place four years ago to the top ranking in 2015. And it looks like the industry is bracing for sustained attack from cyber criminals.
The finding is part of the fifth biennial Insurance Banana Skins survey, a joint PwC and Centre for Financial Innovation (CSFI) report released today. The survey had 806 industry respondents from 54 countries, including 28 from Australia.
Political interference and macro-economic volatility were also among the top fears for Australian insurers, however, at a global level, insurers were slightly less concerned about cyber risks, ranking it 4th behind concerns about regulation, the macro-economic outlook, and interest rates.
PwC Australia’s insurance leader Scott Fergusson said digital product delivery makes Australian insurers prime targets for cybercrime, especially because of the volume of consumer data they have stored.
“Insurers have a vast amount of information that is valuable to cyber criminals, including medical records, banking and credit card details, and personal identity data,” he said.
“The upside is that the Australian industry has already converted awareness of risk to action – one respondent said they are repelling 20 serious attacks each day. The ongoing challenge will be ensuring defences keep pace with the threats as they evolve.”
Concerns about technology were a key focus in Australia, with distribution channels, change management, and product development featured among the top seven ‘banana skins’. The pace of change is a source of anxiety for insurers concerned that existing business models can remain viable in the face of disruptive technology.
“The industry is on the precipice of an enormous amount of change, largely being driven by digital innovation. The impact of wearable devices and connected cars will be significant – once consumers get a level of comfort around sharing data with insurers, the expectations of more personalised and customised products and premiums will quickly follow,” Fergusson said.
Australian insurers were also worried about a lack of growth, with respondents generally gloomy in their macro-economic outlook. Concerns about business practices also rose to 4th position from 9th place in 2013, and 23rd in 2011; a result attributed to the recent advice scandals in the life insurance sector.
Interestingly, any concerns about regulatory risks fell sharply in Australia, despite it being the highest risk globally. Locally it fell from the top slot in 2013, to 16th in 2015.
Scott Fergusson believes a fall in the pace of change since Australian Prudential Regulatory Authority (APRA) was implementing its new life and general insurance capital standards (LAGIC) two years ago explains the shift in mood.
“In 2013 there was some trepidation around the volume and impact of change under LAGIC, however the view in 2015 seems to be that strengthening the focus on risk and capital in the sector has been a good thing.”
Australian insurers were also more sanguine about globally high-ranking risks such as investment performance and interest rates, with the local sector seen to be conservatively invested. Governance risks were also seen as lower order concerns in Australia.
The CSFI/PwC 2015 Insurance Banana Skins report is available here.