Argo Group looks at the future of insurance

A new survey by Argo International Holdings, Ltd. revealed the factors creating the most unease for brokers and businesses connected to the insurance sector. Among the chief concerns highlighted in “The Future of Insurance – 2016 Insights: Risks, Uncertainty and a Looming Talent Gap” were the struggles companies face as they seek to attract the next generation of insurance professionals and underwriters to the industry, and address new threats like cyber risks and climate change.

Cybersecurity risks

While 71% of brokers say they are familiar with cyber risks, the report found that the insurance industry is unprepared to assess new hacking technologies and the risks they present. In addition, only four in 10 small and medium enterprises (SMEs) have purchased cyber insurance, and only 39% even consider their organization a potential target for hackers.

Brokers (73%) said that the most common security problem their clients encounter is phishing, however, 60% of SMEs have not purchased cyber insurance. Over the past 12 months, 23% of SMEs have experienced one cybersecurity incident and 12% have experienced them once a month.

Among the cyber incidents the SMEs encountered were a virus, spyware or malicious code (56.5%); a vulnerability in cloud storage (20.5%), a system failure (20%), a breach due to phishing (18%), lost or stolen laptops (16%) and a distributed denial of service (15%).

The issues that most concern SMEs include a virus or malicious code that affects an organization’s network, the Internet of Things (IoT), a third-party exposure, or an infringement of intellectual property.

“Technology advancements in every domain will create new risks for people and businesses, of which cybercrime is a clear example,” explained Mark E. Watson, III, CEO of the Argo Group. “Cyber risks are unique in that they are both unlimited and perpetual.”

Looking at the Internet of Things

Brokers and SMEs agree that the IoT will disrupt insurance. Items such as refrigerators, smart watches and thermostats are capturing data that can be used to mitigate risks. However, it also makes them vulnerable to data breaches from hackers.

Artificial intelligence (AI) also has the ability to help brokers work faster and smarter, and better tailor their services to clients, but they believe it will also disrupt the insurance industry. Approximately two-thirds of brokers say AI has the ability to replace traditional underwriter and brokering roles, but 78% believe that these advancements will also expose them to new liabilities.

A reluctance to invest in new technology can be attributed in some part to the cost involved. “Specialty insurance is in a unique position in that it deals with new ideas and new threats — and that means new opportunities and new challenges,” shared Gary Grose, group head of producer management at Argo Group. “Despite some hesitancy on the part of both brokers and SMEs, the clearest and most effective way for established insurers to ensure sustainable growth is to combine advanced technology with insurance expertise.”

Among the other findings in the survey is an awareness by brokers (47%) and SMEs (67%) of the long-term risks associated with climate change. As far as global threats, the brokers and SMEs agree that Russian cyber hacking poses the most significant risk (49%) to their clients. This is followed by the risk of a trade war between the U.S. and China (45%), terrorism (43%), the U.S. political climate (42%) and declining relations with Iran (26%), while tensions with North Korea escalate (22%).