Canadian Underwriter

Cyber risk, interest rates, economy remain major concerns for insurers: A.M. Best

March 28, 2016   by Canadian Underwriter

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Concerns regarding cyber risk, interest rates and the economy remain prominent among insurers, according to the latest quarterly survey from A.M. Best Company.

The Best’s Special Report, released on Thursday, included several hundred responses, representing property and casualty (70.4%), life & annuity (22.2%) and health (5.3%) insurers, with the remaining 2.1% identifying themselves as surety, reinsurance, credit and term or title insurance. Among others, topics included U.S. Federal Reserve predictions, Own Risk and Solvency Assessment (ORSA), interest rate predictions, mergers and acquisitions, predictive analytics and the current competitive landscape facing insurers. [click image below to enlarge]

For the survey, titled A.M. Best Winter 2015/2016 Insurance Industry Survey, A.M. Best asked insurers to vote on the most-used word or phrase they encountered in 2015. In the P&C segment, “cyber risk” was the most popular answer, capturing 34.6% of all responses. Low interest rate environment came in second at 25.4%. “This risk has become prominent for the industry as the media highlights continued attacks from a variety of threats, ranging from individual criminals to purported foreign governments,” A.M. Best said.

Insurers were also asked what they felt would be the main driver of industry M&A activity in 2016. Strategic use of excess capital came in highest at 29.3% followed closely, at 27.2%, by being used to meet targeted growth and market share objectives. Although 32.6% of companies do not plan to participate in any type of M&A in the upcoming year, another 66.3% are considering it for various strategic reasons tied to expansion of the business, A.M. Best reported. Respondents’ views of the industry’s M&A activity tie closely to their own plans to utilize it, with most responses centered around growth of products, distribution, and geographical expansion. [click image below to enlarge]

A.M. Best currently maintains negative outlooks on the commercial lines, reinsurance and health segments and stable outlooks on the personal lines, life & annuity and life reinsurance segments. The survey found that although most respondents considered both the commercial lines and reinsurance segment to have a stable outlook, a substantial minority (36.8% and 27.8%, respectively) indicated a negative outlook.

When asked what insurers saw as the leading disruptors for the next five years, over half of respondents cited economic events, capital markets and political events as potential concerns. Technology companies and big data were each viewed as disruptors about 10% of the time. Only 1.1% identified global warming as a potential issue.

Regarding predictive analytics, less than half reported using it, with insurers reporting the use of predictive analytics citing underwriting (82.2%), claims (39.7%) and strategy (24.7%) as the major areas of focus. Insurers applied predictive analytics primarily to homeowners’ insurance, private passenger auto liability and auto physical damage. To a lesser degree, but still meaningful, predictive analytics was applied to workers’ compensation, commercial multi-peril, commercial auto and “other” lines of business. Nearly half of respondents indicated an average range of improvement in their loss ratio of zero to 1.5%, with another 37.8% reporting improvement between 1.5 and 3.5%. Improvement of 3.5% or greater was reported by nearly 15% of respondents.