There has been a major shift in the the risks which most concern the insurance industry, with Brexit far less of a concern that before, a major analysis of the sector has found.
LCP’s study of the early Solvency II disclosures of 50 insurers across the UK and Ireland has found that just 30% of insurers now identify Brexit as a key risk, down from 60% last year, while climate change and cyber risk are both seen as rising priority areas.
More than half of insurers covered by LCP’s research see cyber security as a key risk, up from 46% last year, while 46% of firms cited climate change, up from 18% last year.
A key new risk for insurers is “unanticipated coverage” where they find that they face claims for risks that they had previously believed to be not covered by their policies, particularly in light of the COVID-19 crisis.
Insurers are also concerned about “conduct risk” – or the risk that regulators will take further steps with major financial implications – following the publication of the Financial Conduct Authority’s interim report into general insurance pricing practices.
Despite COVID-19 related uncertainty, over half of insurers (52%) did confirm they expected to continue to meet regulatory capital requirements.
Around the same number (48%) either remained silent or said there was still too much uncertainty to confirm if they would be able to meet the requirements.
Other findings from LCP’s research include:
- Insurers continue to be sufficiently capitalised with eligible own funds that are, on average, nearly double their Solvency Capital Requirement (SCR) at their 2019 year ends.
- 85% firms mentioned COVID-19 and its possible impact on claims experience. However, only 37% gave further details around how they are managing this such as assessing their exposures by lines of business or providing commentary on the expected impacts.
- 54% of firms mentioned the impact that market turmoil as a result of the pandemic is having on their investment holdings.
Cat Drummond, Partner in LCP’s Insurance Consulting team, said that concerns around the impact on claims experience and investments are “rightly” top of the agenda for insurers.
She said: “The impact of the pandemic will have severe fallout for a number of business lines including travel, business interruption and income protection.”
The full report can be found here.