This post is part of a series sponsored by AgentSync.
Explore the top global business risks of 2023 and their impact on the insurance industry
Earlier this year, international corporate insurer Allianz Global Corporate & Specialty (AGCS) released its 12th annual Allianz Risk Barometer. The survey takes a look at the top global business risks according to data from over 2,700 respondents spanning 94 different countries and territories. Respondents include Allianz customers, brokers and trade associations, risk consultants, underwriters, senior managers and claims experts, among other risk management experts.
So what are today’s business leaders most concerned about? Unsurprisingly, the pandemic and the resulting supply chain shortfalls, delays and high inflation had a major impact on the current risk outlook. Macroeconomic developments ranked third for the top business risks for 2023, pushing climate change and natural disasters further down the list. And for the second year in a row, cyber incidents and business interruption took first and second. Both the energy crisis and political risk and violence were new to the list this year, coming in at number 3 and 10 respectively. The 10 global business risks for 2023 according to the survey are as follows:
- Cyber incidents (34 percent of respondents)
- Business interruption (34 percent of respondents)
- Macroeconomic development (25 percent of respondents)
- Energy crisis (22 percent of respondents)
- Changes in legislation and regulations (19 percent of respondents)
- Natural disasters (19 percent of respondents)
- Climate change (17 percent of respondents)
- Lack of qualified labor (14 percent of respondents)
- Fire, explosion (14 percent of respondents)
- Political risks and violence (13 percent of respondents)
Although the purpose of insurance is to help individuals and businesses manage risks like these, the industry is not safe 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
As the No. 1 risk 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 adopting digital solutions as a consequence of pandemic-related shutdowns, cybercrime is currently at an all-time high. This, along with the growing shortage of cybersecurity professionals, means business leaders face an increased risk of attack.
A cyber incident can not only lead to significant expenses and business interruption, but it can also cause reputational damage as they suffer and potential customers take their business elsewhere. Much of the threat comes from cybercriminals finding newer, faster ways to breach standard security defenses. While businesses of all sizes are susceptible to cyber incidents, small to mid-sized businesses that lack modern cybersecurity technology are often low-hanging fruit for hackers.
Cyber incident risk through an insurance lens
Data is the insurance industry’s bread and butter. Insurance companies typically hold data on their customers, producers and employees, everything from names, addresses and birthdays to social security numbers, credit card information and health history. For a large number of organizations, this information lives online, often in unstructured formats such as emails and spreadsheets.
Carriers that fail to protect their data risk falling victim to a cyber attack. Most people hear the words cyber attack and immediately think of identity theft. While this is a very real, very serious consequence, it is only the tip of the iceberg when it comes to the negative effects of a cyber breach. If a hacker infiltrates your insurance organization, you also risk:
- Public Disclosure of Proprietary Information
- Manipulation of data
- Data loss
- Economic loss
- Interruption in operations
- Damage to reputation
- Regulatory measures
How can insurance professionals prepare to face the risk of a cyber attack?
During the time it takes to strengthen your cybersecurity defenses, hackers are enhancing their own knowledge and skills to bypass them. The best defense against a cyber attack is to adopt a holistic approach to cyber security that ensures your technology, people and partners are prepared for an attack.
Technology – Keeping your hardware and software up to date is absolutely necessary to prevent a cyber attack. No matter how progressive your agency, operator or MGA/MGU is when it comes to cybersecurity, outdated technology can open you up to vulnerabilities. For the tech-savvy organizations operating across multiple connected platforms and devices, zero-trust architecture such as multi-factor authentication has become a standard practice.
people – People make mistakes. Your employees are critical to the success of your insurance organization, but they are also one of your biggest cybersecurity responsibilities. But with consistent training, your people can become a strong defense against cyberattacks. Make sure you inform employees of potential threats and equip them with the resources and knowledge they need to prevent an attack.
Partners – The success of your insurance organization’s data security also depends on the security and readiness 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 regularly validate the cybersecurity of your partners and software vendors to ensure they meet your standards.
Remember, this three-pronged approach to cyber security doesn’t reduce your chances of a cyber attack, but it can strengthen your defenses and reduce potential losses. About your insurance organization is is subject to a cyber security attack, understand that federal law may require you to report the incident.
2. Macroeconomic development
Three years after the initial outbreak, the pandemic is still having ripple effects on the global economy. These effects plus supply chain disruptions, geopolitical unrest, an increased frequency and severity of natural disasters, and soaring inflation rates are forcing individuals and businesses in all industries to cut spending due to fears of an impending recession.
As a result, companies across multiple industries are struggling to remain profitable and global insolvencies are expected to increase by 19 percent by 2023. Given these factors, it is not surprising that macroeconomic developments ranked high on this year’s risk barometer.
How macroeconomic developments affect the insurance industry
While you may have heard the industry described as “recession proof,” insurance is actually not immune to the effects of market changes such as high inflation. In response to economic uncertainty, the insurance industry is currently experiencing ongoing tough market conditions, including increased premiums, tighter underwriting guidelines and reduced risk capacity, all in an effort to avoid insolvency.
In fact, the insurance industry is currently facing the toughest market in a generation with rising inflation putting significant pressure on the non-life and insurance markets in particular. Higher construction material and labor costs drive claims costs through the roof, causing insurance companies to pay out more money than they receive in premiums. And with an increased frequency and severity of natural disasters, even standard solvency safety nets such as reinsurance and CAT bonds are being pushed to their limits.
How can the insurance industry react to macroeconomic development risk?
With costs rising across the board due to inflation, insurance agencies and carriers must find ways to reduce operating costs and continue on the path to profitability and away from insolvency. One area for improvement – operational efficiency.
Manual processes like filling out forms and tracking license renewals manually drive workflow inefficiencies by taking employees away from more revenue-generating tasks and taking away from an organization’s bottom line. Automating these tasks frees up agents and staff, allowing them to spend more time helping customers and building stronger partner relationships.
3. Lack of qualified labor
Coming in at number 8 on the risk barometer is the talent shortage many industries are currently facing. As a result of the pandemic, a large number of workers chose to take early retirement. While the increased cost of living is prompting some retirees to return to the workforce, a significant number of open jobs remain unfilled.
Attracting and retaining top talent has proven a challenge across the globe with the aerospace, engineering, construction and professional services sectors taking some of the biggest hits. Many point to the change in employee expectations as a result of the pandemic as a driving factor in this matter. Employees now expect more from their employers in terms of health and safety, benefits, flexible hours and telecommuting options.
How the talent crisis affects the insurance industry
The insurance industry is no stranger to talent shortages. We’ve actually written about it once or twice already. While you may be tired of hearing about it, it’s still a very real problem with very real implications for the future of the industry.
Like it or not, insurance is being hit hard by the labor shortage. The problem is mainly due to the large number of insurance professionals reaching retirement age and leaving the workforce. Replacing these individuals is proving difficult, especially with a younger generation that lacks both industry knowledge and interest.
Bridging the talent gap in the insurance industry
When it comes to dealing with the talent crisis, insurance organizations can lean into a couple of different strategies. One alternative is simply to place more responsibility on remaining employees. However, this is only a short-term solution and we doubt that your employees will react well to the increased workload. A better solution would be a combination of attracting younger talent and changing your talent strategy.
Appeal to the younger generation – To fill the talent gap, insurance professionals must find ways to attract millennials and Gen Zers to the industry. A big piece of the puzzle will be convincing these younger generations that a career in insurance is worth it.
Many young people still think the industry is rigid and old-fashioned. Show potential applicants that’s not the case by offering a more comprehensive benefits package, including telecommuting and mental health options. You can also appeal to a generation of digital natives by implementing modern technology solutions to make the workload more exciting and fulfilling and less tedious and boring.
Raised current talent – If hiring new talent proves too challenging or costly, look no further than your current workforce. Instead of searching for new people to fill gaps, agencies can train their back office workers to take on more meaningful roles by transferring their tedious, manual work to an automated solution. When employees are no longer stuck manually entering and inputting data, they will have more time to develop the skills needed to fill open positions.
Each of the 10 global business risks of 2023 has the ability to cause serious disruption to the insurance industry. It is important that insurance managers are aware of these risks and feel prepared to face them head on. A common thread for mitigating risk, including the three we discussed in detail and many others on the risk barometer, is to update your agency, operator or MGA/MGU technology stack to include modern and automated solutions.
Want to know how AgentSync can help your carriers, agencies or MGAs/MGUs reduce risks such as producer and variable line broker compliance management and more? See a demo today!
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