Risk used to be relatively simple. If a local bakery wanted insurance, you’d worry about its structure, location, operations, and get a good idea of its risk profile. Today, the same businesses have become more complex and interconnected:
- Third-party point-of-sale system used to process transactions
- The business has an online presence and does a lot of sales online and even across state lines
- They use software-as-a-service providers to manage payroll, benefits and accounting
- They offer special boxes, toppings and gifts from around the world
Each of these additional connections and interconnections increases potential business disruption, liability, and sometimes even increased property risk for the company.
Spider web risks
This shows that risks are everywhere today and growing all the time. annual Accenture Pulse of Change Index The research found that the rate of change impacting businesses has increased steadily since 2019 – up 183% over the past 4 years. The risk landscape has never been more complex – a veritable spider web of interconnected disruptions. This was born in our annual Accenture Risk Survey Nearly nine in ten (88%) insurance respondents say complex and interconnected risks are emerging at an unprecedented rate. Insurers view financial, regulatory and compliance, and operational risks as top rising risks, all of which interact with each other. Additionally, 84% of insurers said that as companies and industries become more connected, risks from other industries are impacting their business. Our global study participants highlighted that personal risks can quickly evolve into strategic and existential threats, underscoring the seriousness of risk interdependencies.
When a risky business is a risky business
When it comes to critical risks such as cyber or NatCat, the lack of certainty in accurately predicting whether losses will exceed premium costs has led to insurers increasingly choosing to withdraw and limit coverage. An extreme example of this new risk landscape is examining the potential consequences for the cyber insurance industry of a failure of one of the major cloud providers. This is probably worse than NatCat 5. Given that insurance companies are affected by risk from three different angles: 1) as risk takers providing risk transfer to insureds, 2) as investors investing significant premiums in these industries, and 3) as businesses with their own operational risks, risk management capabilities that can assess, balance and respond to this complex environment become even more decisive for success.
To illustrate this, consider an event such as a port fire that closes a major terminal. The carrier may assume this core risk and have an insurance claim. Their other insureds may also be affected by cargo delays. The airline may also invest in some of these companies that have been affected by the financial fallout. Carriers may experience delays in equipment or supplies, which can also impact operations.
Poor risk management capabilities
Despite the efforts of insurance companies, they are not properly prepared to handle this situation for a number of reasons. First, they lack comprehensive data that would allow them to assess risk. 72% of insurance respondents said their risk management capabilities and processes were not keeping pace with the rapidly changing landscape. The proportion of using the cloud to derive value from data is 30%, but this may be because insurance companies do not have enough risk data in the cloud. Because risk signatures are locked in PDFs and manuscript endorsements are not easily accessible, core data cannot be captured. 22% of respondents cited data quality as the biggest challenge they face when generating insights from data. 18% cited more basic data availability.
Second, even if they have the data, they don’t have the right access or tools to evaluate it. 17% executive say they still Do no achieve satisfactory results Erase data Silos. So while the data exists, it’s still not easy to put to practical use, let alone interpret and derive insights from it.
Third, they lack the skills and technology to take advantage of it. 22% cited a lack of relevant skills as the biggest challenge, while 17% cited legacy technology as the biggest obstacle.
Risk management leaders continue to emerge
There is hope in the future that these needs will be met through better risk management. 28% of insurance companies are already using generative AI to process data and derive value from it, which is promising in the early stages. Additionally, our research did identify a group of risk leaders (14.5%) with advanced risk capabilities among our global respondent base. When it comes to risk, the difference between leaders and laggards comes down to speed of recognition and, more importantly, speed of action. These risk leaders are better at detecting and mitigating threats than their less capable counterparts. They are also more likely to take actions that enhance their risk capabilities and are more satisfied with those actions.
To support these leaders, we Driving the future of insurance through technology The report points out that technology and platform modernization as well as predictive analytics are the main drivers for insurance companies to achieve profitable growth. Eliminating technical debt could be a key performance indicator for generating artificial intelligence.
Connect the dots to enhance business capabilities
How pervasive is risk management throughout the insurance company? How well do you understand exposure? Once detected, what is the response rate?
This depends on the integration of risk processes, resources and capabilities. As just one example, ensure that guidance and renewal materials are appropriately updated. While 75% of insurance participants in the study said businesses outside the risk function are increasingly aware of the impact of new and interconnected risks, more needs to be done to create an organizational risk culture and mindset. A similar proportion (75%) say the risk function is working to support the wider business in developing a risk mindset, while only 36% are very satisfied that the wider business is strengthening its risk capabilities to improve business resilience.
Turn risks into opportunities
In response to the demanding risk environment, insurance risk functions are prioritizing a number of initiatives. Top of the list are implementing technology to improve decision-making (36%), bringing new skills to the risk function (36%) and keeping the board and C-suite informed of emerging risks (36%). While this is all well and good, superior risk management activities need to focus on bringing the identification and response of risk issues into the frontline underwriting and claims process to have the greatest impact, so that the risk function can better contribute to business success.
However, insurance risk functions may be juggling too many priorities at once. A further symptom is that the majority (78%) of insurance respondents want their teams to invest more time in creating value and innovation, which will be the next frontier, but there are barriers. More than seven in 10 (73%) say risk professionals are not sufficiently connected to the business to do this, and 80% say balancing existing responsibilities with value-added activities is a significant challenge.
‘Back to the Future’ model no longer fit for purpose
We can no longer let the past predict the future. Traditionally, insurance companies set rates based on past predictive models. That alone is no longer feasible.
The importance of data cannot be overstated – both in terms of risk detection and mitigation, and in informing decision-making in action planning at both corporate and individual transaction levels. According to our Leveraging AI to transform claims and underwriting Insurers have access to underutilized assets from vast amounts of structured and unstructured data collected from vehicle telematics devices, IoT devices, interactions with customers, third-party databases and more, the report said.
Having the right data lake architecture allows for the elimination of silos, faster data ingestion, and cross-pollination of data across departments to drive predictive analytics. The ideal is to be able to provide risk-related insights to frontline underwriters, claims analysts and decision makers to make more informed decisions. In this way, we can enable companies to truly manage these interconnected risks. Without it, the interconnected web of exposures will only grow and we will be blinded by what we assume to be true exposures. This is not a risk that can be easily avoided or transferred. You can only get better by taking action.
Our Accenture 2024 Risk Survey found that risks are everywhere and now interact with each other to form a web of threats.
