2019: Most dangerous risks to insurers

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Turbulence is a neutral word to describe what many of us experienced on many fronts in 2018. Once again this past year-end, we asked scores of insurance executives what they expected would be most dangerous in the coming year. And even with all of the turbulence, we got similar responses to last year. Six of the top ten risks identified as most dangerous for insurers in 2019 were in the top 10 last year. The other four fell within last year’s top 18.

The top 10 most dangerous risks for 2019 chosen by the 186 insurance executives who answered our poll are:

1. Strategic direction and opportunities missed (up from number three in 2018)

The crystal ball is cloudy. It seems that many firmly agree that a change in direction is coming for the industry, but it is unclear what that new direction will be. Few felt confident in their own ability or their management’s ability to make all the right choices for their companies’ future directions.

2. Cybersecurity and cybercrime (down from number one in both 2017 and 2018)

Cyber remains a top risk, though it lost its number one ranking this year. Perhaps this reflects the growing availability of internal skills and external insurance options. Or perhaps it is a mark of unrealistic optimism. One respondent notably mentioned that the overemphasis on cyber risk at the expense of other risks was a new danger.

3. Pricing and product-line profit (up from number four in 2018)

Swiss Re estimated global catastrophe losses in 2018 to be less than half the level of 2017. However, pricing and product-line profit is still seen as a major danger to insurers for 2019.

4. IT/systems and technology gap (down from number two in 2018)

Last year, we identified that a large number of insurers were planning to or had recently completed major systems overhauls. The “tech gap” presents both a strategic and operational risk. But some insurers have now completed their systems upgrades; and they were done without disastrous cost overruns. And it seems to be working, so it is not quite as large of a danger. But there is still the lurking question of, “How long will this latest update be sufficient?”

5. Competition (up from number nine in 2018)

Any business in a capitalist system that does not have “competition” on its list of top 10 worries is taking big chances. Almost every insurer has plans to grow faster than the economy will grow, which will require taking away business from their competitors. Many insurers are looking toward big data to tell them which of their customers to protect the most vigorously and which of their competitors’ customers to go after the most aggressively. Beware!

6. Legislative and regulatory changes (up from number 11 in 2018)

The U.S. tax law changes that went into effect in 2018 turned out to be a mixed blessing for insurers, raising after-tax profits while increasing after-tax capital requirements. Major ongoing developments in both international and local financial reporting guidelines create further challenges.

7. Talent and employee relations (up from number 12 in 2018)

This risk has risen up the rankings in both 2018 and 2019. Amid falling unemployment and a growing U.S. economy, more companies are competing for the same pool of qualified resources. Finally, the aging workforce also puts many insurers at risk of losing significant intellectual capital over the next decade or so.

8. Reputation / rating downgrade (up from number 16 in 2018)

The risk of a reputation event resulting from a rating downgrade had the largest jump of ranking in the 2019 survey. This may be a result of the major changes to the insurer rating criteria that have been implemented by AM Best. By expanding their attention to multiple return periods on the “Best Capital Adequacy Ratio” (BCAR), AM Best is significantly reducing the degrees of freedom for insurers.

9. Business operations failure (up from number 13 in 2018)

This is the fourth risk breaking into the top 10 for the first time in 2019. On one hand, growth in cloud-based computing services and remote working capabilities would suggest this risk should decline. On the other hand, more complicated and interconnected technologies magnify the significance of any potential failure.

10. Customer needs not served by traditional approaches (down from number seven in 2018)

This risk seems to be another one of those memes that sounds right, but hasn’t quite happened yet. Technologists like to say that disruption is coming soon to a theater near you, but its arrival appears to be delayed yet again. Still cautious, it is seen as a little less of a threat, at least compared to the other risks above.

Reviewing the risks by product line

This year, we added the ability to split out responses from people primarily associated with life insurance from the property and casualty / non-life / general insurance crowd. For the property and casualty folks (133 of the 186 responses), the top five risks were the same as above, but in a slightly different order:

Property and casualty top five risks:

  1. Cybersecurity and cybercrime
  2. Strategic direction and opportunities missed
  3. IT/systems and technology gap
  4. Pricing and product-line profit
  5. Competition

Life insurance responders (53 out of 186) favored three of the same top five, with the most striking difference coming from their recognition of interest rate change as the third most dangerous risk. This is not a surprise, as the long-term nature of life insurance requires insurers to carefully consider investment strategies and the resulting impact on pricing and product features.

Life insurance top five risks

  1. Strategic direction and opportunities missed
  2. Legislative and regulatory
  3. Interest rate change
  4. Pricing and product line profit
  5. Competition

Overall four of last year’s top10 were voted to a less dangerous position.

2018  2019
Rank Rank Risk
5 18 Runaway frequency or severity of claims
6 17 Disruptive technology
8 15 Customer needs not satisfied by traditional approaches
10 12 Underwriting

In the past, and again this year, we would recommend that an insurer could use this list as a challenge to their existing risk list. The process would be to compare your internal choices for your top 10 list to the above and then see if you have compelling stories to explain the differences.


Dave IngramDave Ingram is an Executive Vice President of Willis Re, specialising in theory and practice of ERM for insurers.

Mark Mennemeyer, senior Enterprise Risk Management practitioner

Mark Mennemeyer is a senior Enterprise Risk Management practitioner in Willis Towers Watson’s Insurance Consulting and Technology business.

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