Insurers’ lack of appetite for cyber and climate-related risks will see industry’s relevance nosedive in the eyes of customers

By Jon Guy

Shortly after Michael McGavick became chief executive of XL Capital in 2008, he delivered a speech in which he said the biggest threat to the insurance industry’s future was “relevance”.

Jon Guy

Jon Guy

Times were changing and risks were changing - with the growth in the use of technology, the industry needed to change to ensure it would still be viewed as relevant by customers, he warned.

You have to wonder if it is an address McGavick remembers as he views the industry today. If he doesn’t, the wider industry would be advised to see if it can dig out a copy.

Covid-19 has changed the way companies of all shapes and sizes do business. Be it the move to hybrid working or the shift from face-to-face to online operations, business risks have changed in the pandemic’s wake.

This week, we have seen a new study from broking group Howden on insurers’ risk appetite within the London market for 2022. Ask any business leader or their brokers to name the biggest risks they face and it is almost certain that both the impact of climate change and cyber threats would be at the top of their list.

Therefore, it will come as a real disappointment that - according to Howden - the London market is looking to reduce its participation in catastrophe and cyber underwriting amid fears over the inability to adequately quantify the aggregate risks and associated exposures.

At a time when there are dire warnings as to the impact of global warming on the severity and frequency of natural perils, the industry is looking to limit the cover for such catastrophes.

Every recent study into cyber risk points to an increase in the threat from criminal gangs and hackers, yet adequate levels of insurance are becoming ever harder to access.

In his speech, McGavick warned that the industry could not simply continue to produce the same products and yield the same results. Insureds want their risks covered and if the industry cannot do the job, then they will find alternative solutions.

It is some years since McGavick gave that speech and times have certainly changed. Much has been said and done by the insurance industry to enhance the way business is transacted. It has been quick to praise itself on the way in which it coped with the forced move to remote working.

However, if the products aren’t relevant to the client, then the best transactional system in the world will make little difference.

The industry needs to create fresh solutions to future risks and provide the cover required for the current threats.