Global insurance execs' extreme risk worries revealed

A new Towers Watson survey reveals the 10 biggest extreme risks for the global insurance agency.

 Global insurance execs' extreme risk worries revealed

Cyber

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A global pandemic, a widespread natural disaster and a food/water/energy crisis are the top three extreme risks threatening the insurance industry in the near future, a Towers Watson survey of global insurance executives reveals.

The survey—part of Towers Watson’s biennial analysis Extreme Risks—asked more than 30,000 top executives to rate very rare events that would have a large impact on global economic growth and the insurance sector.

In addition to health, weather and technological risks, the insurance executives also saw financial disasters as having a large role to play in the future of the insurance industry. An economic depression, a banking crisis and a default by a major sovereign borrower were all listed in the executives’ top 10 concerns.

Towers Watson said these sorts of financial crises would have implications not only for the home country, but for much of the globe.

In the example of a sovereign default, for example, the group believes the event would result in a “regional insurance crises and an increase in M&A activity due to forced disposals from banking groups.” For a prolonged economic depression, the effects would trickle down from insurers to individuals, where a pressure on household finances would lead to a reduction in vehicle miles, for example, which would in turn lead to a reduction in claims.

Participants in the survey also included some of their own imagined scenarios. Technology risks, extreme weather and a large-scale property damaging event were all scenarios submitted by respondents that made it into the top 10.

Stephen Lowe, a senior consultant with the risk consulting and software division at Towers Watson, said the user-submitted scenarios reflect how well insurance executives are evaluating recent trends.

“Much as we would have expected pandemics and natural catastrophes to figure prominently in insurers’ extreme risk thinking, the high rankings of concerns such as cyber-warfare and a major data compromise in the cloud…illustrate how the industry is keeping up to date with risk assessment,” Lowe said. “These kinds of risks that could wipe out an insurance business do inevitably evolve over time, so we were very encouraged to see this degree of engagement from a broad sample of the industry.”

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