Climate Change Major Risk to Insurance Industry

Potential climate change is the greatest strategic risk currently facing the property/casualty insurance industry, with demographic changes taking priority for the life insurance industry, according to a new study by Ernst & Young, closely followed by demographic change and catastrophic events. For the new study, Strategic Business Risk 2008, Ernst & Young and Oxford Analytica interviewed more than 70 industry analysts from around the world to identify the emerging trends and uncertainties driving the performance of the global insurance sector over the next five years. The study identified risks in three broad areas - macro, sector-specific and operational threats. It identified the top ten risks and five emerging threats. Peter Porrino, global director of Insurance Services at Ernst & Young, noted, "Change is constant. Ten years ago, would climate change have been top of anyone's risk list? Demographic change was obvious back then, but it is now a reality. Strategic risks vary for individual companies, but for the insurance sector as a whole these are the threats the experts say will have the greatest and most far reaching consequences. Insurers have to deal with them now, as they will change the business environment, the competitive pressures and the business opportunities. They have to view risk management as a way to improve operations, financial performance, and shareholder value."

    The top 10 risks are:
1  Climate change: long-term, far-reaching and with significant impact on
    the industry
 2  Demographic shifts in core markets: offers business opportunities but
    risk that other sectors will capitalize first
 3  Catastrophic events: rising costs and serious impact on earnings for
    insurers
 4  Emerging markets: risk and opportunity but competitive threat from new
    players
 5  Regulatory intervention: increased scrutiny impacting on operations and
    practices
 6  Channel distribution: technology is changing the way insurance is sold
    and purchased
 7  Integration of technology with operations and strategy: an enabler to
    keep pace with competition but lack of integration is a threat at the
    strategic business level
 8  Securities markets: changes in capital providers and the way capital is
    entering the insurance industry are causing major changes in the
    industry
 9  Legal risk: significant and unexpected change in the legal environment,
    such as government legislation or evolving case law, will continue to
    have a critical impact on the insurance industry
 10 Geopolitical or macroeconomic shocks: likely causes unknown but
    consequences potentially severe.