It won’t produce the laughs that one of David Letterman’s Top 10 lists might, but a recent Top 10 list offered by Ernst & Young may well get insurance executives’ attention late at night.
The list is the Top 10 Strategic Risks facing the insurance industry, set out in a new study, Strategic Business Risk Insurance 2008, produced by E&Y in conjunction with consulting firm Oxford Analytica. According to the study, the top 10 risks are:
1. Climate change
2. Demographic shifts in core markets
3. Catastrophic events
4. Emerging markets
5. Regulatory intervention
6. Channel distribution
7. Integration of technology with operations and strategy
8. Securities markets
9. Legal risk
10. Geopolitical or macroeconomic shocks
The report notes that risks change over time, and that if such a list had been compiled 10 years ago, it’s arguable whether climate change would have been on it. Today, however, climate change tops the list, and is “typically viewed as a long-term issue with broad-reaching implications that will significantly impact the industry,” the report says.
As for demographic shifts in core markets, the report notes that with baby boomers reaching retirement age, the insurance industry is well positioned to meet the generation’s new demands, but could lose out to other sectors.
Changing weather patterns, terrorist attacks and pandemics are among the factors driving catastrophic events to the third position on the list, while the report’s authors noted that number four, emerging markets, present both risks and opportunities for insurers, with success in those markets not a given.
Technology factors twice on the list. In the sixth spot, channel distribution, the report notes that technology has changed the way insurance is sold and that the possibility of Internet disintermediation is becoming a major risk for insurers, with companies offering multi-channel access for sales and information enjoying an advantage.
One down the list at seven is integration of information technology with operations and strategy, a risk some companies have become painfully aware of through their own experience in recent years. “Insurers need to view technology as an enabler to keep pace with the competition,” the report says.
The report also lists some “Below the Radar” risks that, while not making the Top 10, have the potential to make the list over the next five years. That list includes over-reliance on model-based risk management, threats to the reputation of the industry, losing the war for talent, increasing corporate exposure to global regulatory heterogeneity and possible emergence of entirely new risks.