A new day of risk in insurance | Insurance Blog
The danger was often simple. If a local bakery is looking for insurance, you can worry about the building, the location, how it operates and you can have a good idea of its risk profile. Today that same business is much more complex and interconnected:
- Third party Point of Sale systems are used to process transactions
- Businesses have a web presence and do a lot of things online even in different areas of sales
- They handle payroll, benefits, and accounting using software-as-a-service providers
- They have special box items, ingredients, and popular items from around the world
Each of these additional connections and connections increases the potential business disruption, liability, and sometimes even the company’s asset risk.
Dangerous spider web
As this shows, danger is everywhere these days and growing all the time. The Accenture Pulse of Change Index found that the rate of change affecting businesses has increased slightly since 2019 – 183% in the last 4 years. Never before has the risk landscape been so complex – a veritable web of interconnected disruption. This came from our annual Accenture Risk Survey where nearly nine in ten insurance respondents (88%) said that complex, interconnected risks are emerging at a faster rate than ever before. Insurers have identified financial, regulatory and compliance, and operational risks as incremental risks, all of which negatively impact each other. Additionally, 84% of insurers say risks from other sectors are now impacting their business as companies and industries are more interconnected. Underscoring the severity of risk interdependence, our global research participants signaled that individual risks can evolve into strategic and existential threats.
When a risk business is a risk business
When it comes to critical risks like cyber or NatCat, there is a lack of certainty when it comes to accurately predicting whether losses will exceed premium costs, leading insurers to increasingly choose to retreat and limit coverage. One extreme example of this new risk scenario would be to examine the potential consequences for the internet insurance industry were one of the major cloud providers to be cut off. This may be worse than NatCat 5. The insurers offered are affected by risks from three different sides: 1) as risk takers who provide the transfer of risk to the insured, 2) as investors with a large amount of premium invested in these sectors and 3) as businesses with their own operational risks, the risk management force can assess, measure and respond to this more complex success to answer this complex success.
To illustrate this, consider an event such as a house fire closing down a bar. The carrier may bear that primary risk and have an insured claim. They may also have other insurances affected due to delayed shipments. The carrier may have investments in some of these related companies because of the financial impact. And the carrier may have consumables or delayed goods that also affect performance.
Risk management capabilities behind the curve
Despite their efforts, insurers are ill-prepared to deal with this situation for a number of reasons. First, they don’t have aggregated data to be able to assess risk. 72% of our insurance respondents say their risk management capabilities and processes are not keeping up with the rapidly changing landscape. At 30%, the use of the cloud to derive value from data is low but this may be because insurers do not have enough risk data in the cloud. Key data are not captured with risk factors locked out of PDFs and manuscript approvals are not easily accessible. 22% cite data quality as the top challenge they face when it comes to generating insights from data. 18% cite the availability of even more basic data.
Second, even if they have the data, they don’t have the right access or tools to analyze it. 17% of managers they still say do not get satisfactory results to delete data silos. So despite the existing data, it is still not readily available for practical use, let alone interpreting and deriving information from it.
Third, they lack the skills and expertise to implement it. 22% cite a lack of key skills as the top challenge while 17% cite dying technology as the biggest obstacle.
Risk management leaders are emerging
There is hope for better disaster management in the future to meet these needs. 28% of insurers have started using generative AI to process and derive value from promising data at this early stage. And our research has identified a group of risk leaders (14.5%) across our base of global responders with advanced risk skills. The difference between leaders and laggards when it comes to risk comes down to both speed of identification and more importantly, speed of action. These vulnerable leaders are better at detecting and mitigating threats than less skilled peers. And they are more likely to take actions that strengthen their risk-taking ability and be more satisfied with those actions.
In support of those leaders, our Fuel the future of insurance with technology report cites technology and modern platform and predictive analytics as key drivers to deliver profitable growth for insurers. Elimination of technical debt can still be a defining KPI for generative AI.
Connect the dots to empower the business
How far does risk management go in every insurance company? How well do you know what exposure is? And once found, what is the speed of response?
This depends on the integration of risk processes, resources and skills. To give just one example, validation guidelines and update profiles are updated accordingly. Although 75% of insurance survey participants say that the business outside of the risk function is becoming more aware of the impact of new and connected risks, much remains to be done to create an organizational risk culture and mindset. The same percentage (75%) say the risk function is struggling to support the wider business in developing a risk mindset and just 36% are very satisfied with the wider business strengthening its risk capabilities to improve business resilience.
Throwing risk into opportunity
Responding to the difficult situation, the insurance risk activities are prioritizing many efforts. Chief among these are using technology to improve decision-making (36%), bringing new capabilities to the risk function (36%) and keeping the board and C-suite informed of emerging risks (36%). While all of this is good, senior risk management functions need to focus on bringing the identification and response to risk issues to the front line and claims processes to have a greater impact so that the risk function can better contribute to business success.
However, insurance risk activities may include many important factors. Another sign of this is that the majority (78%) of insurance respondents want their teams to devote more time to respecting creativity and innovation, which could be the next frontier, but there are roadblocks. More than seven in ten (73%) say risk experts are not connected enough to the business to do so and 80% say balancing existing and value-adding activities is a major challenge.
The ‘Back to the Future’ model is no longer fit for purpose
We can no longer let the past predict the future. Traditionally, insurance providers have set their rates based on past models. This alone no longer works.
The importance of data cannot be over-emphasized – both in detecting and mitigating risk and informing decision-making when it comes to action plans both at the enterprise and individual employee level. According to our report Transforming Claims and Underwriting with AI, insurers have access to an underutilized asset in the vast amount of structured and unstructured data they collect from things like car phones, Internet of Things devices, customer interactions, third-party databases and more. .
Having the right lake formation data in place can allow for the elimination of silos, faster data entry and cross-pollination of data across departments needed for predictive analytics. The ideal situation is to be able to provide lead underwriters, claims analysts, and decision makers with risk-aligned information to make informed decisions. In this way, we can equip the company to really manage these interconnected risks. Without you, the web of interconnected exposure will only grow and we will be blinded by the revelation of the truth we think. This is not a risk that can be easily avoided or passed over. It can only get better with action.
Our Accenture Risk 2024 survey finds that risk is everywhere and individual risks are now interconnected, creating a web of threats.
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