Reinsurers’ now rank climate change as the greatest risk facing the global industry following PwC’s latest industry “Banana Skins 2021” survey.

Banana skins

Conducted in association with the London-based think tank, The Centre for the Study of Financial Innovation (CSFI), the Banana Skins survey has provided a revealing insight into the concerns of the global insurance industry and management’s confidence in its ability to handle these risks since the first was undertaken in 2007.

This was the first survey undertaken since the Covid-19 pandemic and the PwC/CSFI received 607 responses from 47 countries, representing life and P&C insurers, as well as composites, intermediaries and pure reinsurers/specialty carriers.

According to PwC, all branches of the industry place a greater focus on climate change than in 2019 but it is now the greatest risk according to reinsurers vs number four when considering responses from all sectors (see table).

Insurance banana skins 2021 – Top 10 risks

In what will inevitably prove to be another year for above-average insured cat losses – compounded by the unusual nature of the three most severe events (Texas winter storm, European summer floods and Hurricane Ida) – it was hardly a surprise that reinsurers place so much focus on climate.

Insured catastrophe losses YTD ($bn)

Examining the results, and PwC’s Bermuda leader and Insurance leader Arthur Wightman commented: “It’s clear from our biennial survey that the impact of climate change is now seen as a far nearer-term risk to insurers and reinsurers than previously considered. The industry is also gravely concerned that the wider implications of climate change are difficult or impossible to predict.”

At a time when governments and regulators are demanding more reassurance from companies in how they are quantifying and managing climate risk, Wightman said the ongoing Cop-26 talks are also an “opportunity for the insurance industry to highlight the unique and critical role it can play in bringing its expertise and resources to help address the formidable challenge of climate change and help the world go faster to net zero.”

A revealing – and perhaps encouraging – omission was the pandemic from the top ten, suggesting the industry feels it is a risk that has largely been confronted. Other significant concerns – shared by both reinsurers specifically and the industry more widely – were regulation and crime. The latter, of course, highly topical following the scourge of cyber ransomware – itself thought in part to have escalated because of the WFH phenomenon prompted by Covid-19 last year.

Matt Britten, risk assurance partner, PwC Bermuda said: “As organisations introduce cloud-computing and new digital solutions with the increase in virtual working, the challenge for insurers has become more complex than ever. The rise in the risk posed by cybercrime reflects concern about both the vulnerability of insurers’ systems to cyber attacks, and the costs of underwriting cyber insurance. Of significant concern is that insurers may be underestimating the potential costs of cybercrime when writing policies.”

Inevitably, the macro-economy and yields/interest rates was a concern to the industry overall but relatively less so to reinsurers than, say, life insurers. One Bermuda-based reinsurance executive appeared to summarise the thoughts of his peers when he acknowledged that “Low investment return hampers insurance company returns”, before adding: “but should not cause permanent harm”.