A number of challenges are in store for insurers in 2016 according to Martin Bradley, Ernst and Young’s global insurance, finance, risk and actuarial leader. In an interview with Insurance Business, Mr. Bradley outlined a number of issues insurance professionals in Australia and worldwide should keep an eye on in the coming year including economic conditions and emerging risks of cyber threats.
Low interest rates impacting revenue
One of the most important trends for insurers to be aware of is low interest rates, which can severely affect profitability. While insurers make a significant portion of revenue through investment, low rates can slow down or dry up the profit generated by investments.
“[Returns] don’t threaten the viability of insurers generally, they are well capitalised, but they do jeopardise profitability and they do force more focus on cost control and they make the competitive environment tougher,” Mr. Bradley said.
The current interest rate of 2 per cent can also deter new insurance purchasers, leading to a further shortfall for companies.
Cyber threats are an emerging area of risk
Mr. Bradley also identified cyber threats as a new challenge and opportunity for insurers, one that the industry is already poised to tackle through existing products such as business interruption insurance.
“The product offering has two dimensions to it which are very interesting. One is a direct cyber offering but the other is to recognise that a number of existing covers are becoming a natural category for cyber risk, like business interruption type covers and so on,” Mr. Bradley noted.
Whether existing policies will account for damages incurred through cyber attacks – a threat that likely was not on the radar when many policies were drawn up – is something insurers will have to determine for themselves.
Insurers who keep ahead of these issues can be sure to deliver the best results for themselves and their clients in 2016.