The CEO of the International Underwriting Association IUA has said climate change has the potential to threaten the insurance business model as the association sees climate and cyber as the market’s priorities for the year ahead.
In the first of two articles Dave Matcham said the unknown elements in both risks would challenge the market but there were opportunities, but they will require a reasoned response in the face of external pressure.
“Both climate change and cyber present unique opportunities for and threats to the market,” he said. “Climate change itself threatens the insurance business model. If climate change continues at its current rate, there will eventually be too much risk in the system for customers to be able to afford what is available.
“Steve Waygood of Aviva put forth this idea at the ABI Climate Change Summit, although I think it is pretty uncontested. Natural catastrophes will increase in frequency, infrastructure will fail on a global scale and humans will struggle to manage rising air and sea temperatures and a decline in biodiversity and resilience.
“Taking a proactive position, however, can indeed present a major opportunity to the market. With its unparalleled understanding of risk, the insurance industry is well placed to both aid the mitigation of this risk and to encourage and facilitate climate resilience.”
He added: “Through the provision of insurance coverage, the market enables the development of renewable energy sources and nature based solutions. The market has the investment potential to support the emergence of green technology and resilient infrastructure and to influence the trajectory of major contributors to climate change. In these ways and others, the insurance industry has the potential to play an integral role in helping to lead and define the transition to net zero and to do so in a way that is orderly and just.”
In terms of cyber cover, Matcham said the threat is increasing and COVID has played a part.
“Cyber is a growing and complex market which presents a number of challenges and possibilities to the market,” he explained. “As for any organisation, cyber is critical for many internal processes and tools within insurance companies, however it also uniquely applies to the supply side for insurance firms as they develop solutions to mitigate the risk for their clients.
“Due to factors such as the Covid-19 pandemic and growing supply chain risk, there has been a rising number of threat actors. With an increasing reliance on work from home capabilities, cybersecurity and resilience have become even more crucial for companies. The rise of technological adoption and interconnectivity both in the workplace and in everyday life has introduced elements of uncertainty which impacts the understanding of risk by customers and insurers alike.
“At the same time, the cyber market is still relatively new, which means there remains much room to shape its progress. The increasing availability of data in the cyber space means that insurers can make progressively better-informed decisions. Fast-paced technological growth means that there is always appetite for new products but the market must ensure that they are not left behind by this growth. As with climate change, insurers have the capability to influence and providing solutions for the cyber market in a very meaningful way.”
Matcham added both topics have a substantial number of unknown elements.
“As a trade association that aims to facilitate information sharing between members, it is in these grey areas where members can benefit most from the services of the IUA. Tackling climate change from an insurance perspective requires several means that have yet to be fully developed, such as a consistent reporting framework, a universal green taxonomy or reliable and accurate climate models. Imminent and persistent threats in the cyber sphere, such as ransomware, supply chain risk and the lack of widely used standard cyber wordings, present challenges for insurers in terms of both the pace of development and the lack of consensus in the understanding of risk.
“Knowing how to proceed in these areas requires collaboration between the market, regulators and international bodies, a collaboration that the IUA aims to facilitate.”