Climate change and cyber, the key risks ahead for insurance: Taylor Fry report
Climate change and cyber are the two key risks posing key challenges ahead for insurers, according to Taylor Fry’s latest Radar 2022 Report.
Climate change
The report flags that climate change has increased the frequency and severity of catastrophic losses in Australia. In the years to come, this trend will continue, leaving insurers to contend with rising claim costs, reduced access to insurance and growing unaffordability.
Taylor Fry has advised that insurers play a vital part in creating solutions that stretch across various industries and government bodies. As an example, insurers may draft terms that incentivise the construction of safer and more resilient buildings.
At a more global level, the report also flagged a societal shift towards standardising the reporting of climate-related risks, with listed companies in the United States, United Kingdom, New Zealand, Japan, Hong Kong and the European Union all mandated to disclose their risks. In the long run, investors, regulators and consumers will hold higher expectations of disclosure.
The insurance industry will subsequently be challenged to create more sustainable portfolios. Net-zero targets will reset the underwriting standards of today, with more than 20 leading insurers around the world already committing to transitioning their underwriting portfolios to net-zero emissions by 2050. Insurers will play a pivotal role in empowering new technologies and business practices of the future.
Cyber
According to Taylor Fry, cyber risks pose a major threat in Australia. With approximately 35-70% of larger businesses having cyber insurance, and only 20% of SMEs, cyber insurance is arguably still in its infancy in Australia.
The report has found that cyber underwriting practices have strengthened in the past year, with larger insurers investing more time into understanding and underwriting cyber risks and offering greater assistance to policyholders. This has ensured that companies are increasing their overall cyber security, and insurers in turn receive less claims.
However, a multitude of challenges still lie ahead for insurers.
Accumulation risks, such as exclusions for acts of war, are standard for traditional insurance products where physical property damage caused by war is exempt. However, Taylor Fry suggests that this does not translate well for cyber risks. There have been several examples of highly organised cyberattacks sponsored by foreign states and such exclusions may cause devastating financial and reputational damage to companies.
There are also various uncertainties in cyber insurance that complicates claims handling, such as the challenge of attributing a responsible party in a cyberattack, especially as cyberattacks have no geographical limits.
The report stresses the necessity for insurers to solve these challenges as cyber insurance products mature, with such products providing an integral security to society as we increasingly digitise.
To read the full report, click here.