The Big Question May 2023: What emerging risks should insurance firms watch out for in 2023?

Branko Bjelobaba, principal, Branko

For me, there are two keys risks for 2023 that general insurance brokers in particular will have to get their heads round – and they are inter-related.

Firstly, Consumer Duty. The duty introduces a new principle, which requires firms “to act to deliver good outcomes for retail customers” when it comes to products, services, price, value, consumer understanding and support.

What does this actually mean in practice? Putting it simply – has a product been designed well? Do consumers understand it? Is it priced correctly? Does it provide fair value in terms of the product itself and then the services provided by the broker and anyone else? Does it work? Are consumers supported? And the big one, are you behaving the best way possible?

These are the must-have-delivered essentials and 31 July is coming up fast – you need to embrace all of these and then have evidence that you have done so.

Second are the proposed reforms to leasehold buildings insurance where some insurers and brokers seem to have been working together to ensure that the poor person buying the flat gets shafted.

So, the FCA are suggesting a ban on sharing of commissions unless all parties being paid actually do something worthwhile, which does indeed add value to the person paying for all of this. They are also suggesting a lot of information sharing and disclosure of commissions.

The UK government, under Michael Gove, remain very unimpressed and think all brokers are up to it and Biba should sort it out.

If you have never suggested a ludicrous level of commission as a cost to play so you can accommodate the property managing agent and or freeholder who has asked for a kick-back, then all should be fine. 

Michael Gregory, head of underwriting strategy, RSA Insurance

Climate litigation is a growing threat to businesses and governments around the world.

In recent years, there has been a surge in lawsuits filed by individuals, communities and organisations alleging that climate change is causing harm. These lawsuits are being filed under a variety of legal theories, including negligence, nuisance and public trust.

The threat of climate litigation has emerged as very real and present.

In the United States, for example, a number of cities and states have filed lawsuits against fossil fuel companies alleging that they are liable for the costs of climate change.

These lawsuits have the potential to bankrupt select companies and force them out of business, whilst applying pressure to insurer wordings and testing both underwriting and reserving methodologies.

We are, additionally, seeing cases brought against both firms and governments in Europe.

The threat of climate litigation is growing. As the effects of climate change become more severe, more people are likely to file lawsuits alleging that climate change is causing harm.

This could have a significant impact on businesses and governments around the world and, in turn, their insurers.

Societal protection is key and insurers have a leading role to play in using risk mitigation and transfer to help society prepare for the consequences of climate change.

James Burns, head of cyber strategy, CFC

Cyber attacks undoubtedly remain the biggest risk to most businesses regardless of size or industry sector.

However, I’m concerned that press attention around ransomware is distracting brokers and businesses from where their most common exposure remains.

In our experience, their number one exposure by frequency is theft of funds and social engineering fraud.

These attacks may not have the extraordinary values that you see in ransomware, but they could wipe out a small firm.

As an industry, we have got to get better about articulating what the risk is to SMEs and focus their attention on the access to security and risk mitigation services that we’re selling.

And given the ongoing conflict between Russia and Ukraine, we do need to ensure that our wordings around cyber war are specifically and more narrowly defined so that coverage is crystal clear.

The nature of warfare has changed and, in my opinion, the Lloyd’s of London mandate is a positive move to clarify cover rather than remove it. If done correctly, the result will be a broader policy for our customers. 

James Lindow, underwriting director, Ecclesiastical Insurance

With rising inflation and the cost of living crisis, those who have more to lose are becoming a greater target for criminals. Ensuring high net worth (HNW) clients have comprehensive insurance cover and a high awareness of security is vital.

Openreach’s national telephone network switch to fibre will put security alarm systems at risk as they may no longer work by the end of 2025.

If clients haven’t already heard from their alarm company about the new digital network, they should contact them as soon as possible.

Criminal gangs are looking to social media to understand their target’s lifestyle and routines, making it easier for them to target them.

It’s more important than ever that HNW clients are careful about how they, and their family and friends, post and interact on social media.

Underinsurance continues to be a key issue in the HNW sector and 2023 will be no exception.

As inflation and the cost of living soars, the prices and values of many precious items are also increasing rapidly and existing valuations can quickly become out of date. It is vital that brokers are speaking to their HNW clients to ensure they are keeping valuations up to date regularly.

Simon Ritterband, managing director, Moonrock Drone Insurance

According to PricewaterhouseCoopers’ (PwC) Skies Without Limits v2.0 report, published July 2022, the drone industry is estimated to hit £45bn by 2030 and create upwards of half a million new jobs.

This growth presents a significant opportunity for the insurance industry, as there has been an exponential increase in requests for insurance coverage for non-standard drone operations, such as beyond-visual-line-of-sight (BVLOS), heavy lift drones, swarm displays and crop spraying.

Overall, non-standard operations such as BVLOS offer significant potential, but they also come with some significant risks.

BVLOS drones, for example, can collide with other aircrafts, buildings and other obstacles in the environment, which can result in property damage or injury.

BVLOS drones can also raise concerns around privacy and security, as they can be used to collect data or perform surveillance without consent, posing a risk to people’s privacy rights.

Hackers, on the other hand, could potentially inject malware or other malicious code into a drone’s system – allowing them to take control of the drone or use it for malicious purposes, such as carrying out cyber attacks.

As the drone industry continues to grow, insurance companies need to be proactive in their approach to providing coverage for non-standard drone operations. 

Using data and analytics can help these firms better understand the risks associated with these technologies.

Andrea Wells, strategic account manager, Broker Insights

Digital transformation should be an ongoing priority for all insurers.

We believe failure to embrace change, while not a direct risk, will result in loss of their place in the market over time for those insurers that do not address the issue.

“Do what you’ve always done, get what you’ve always got” comes to mind, but with one major difference – without proactive digital transformation, those that continue to do what they have always done will find it increasingly hard even to keep what they currently have.

However, insurers that proactively seek opportunities to use data across their operation will be better placed to secure significant gains in market share, efficiency and effectiveness.

A further risk all insurers face is how well they are extracting insights from data. Every insurer has vast amounts of data, but unless the right tools and skills are in place to utilise it, it can fail to become the great asset it could be.

Understanding the actionable insights data can provide and how to quickly access them to inform product offerings and look for opportunities to innovate more broadly is critical. Those that can extract insights from complex data will be better able to inform their distribution strategy, adapt support models and reduce wasted effort.