How important is insurance to the future of the world? With emerging issues such as cyber risks, climate change risks, global geopolitics, uncertain economic conditions across countries, the great resignation, the Russian-Ukraine war, possible deglobalization, ESG considerations in business and rising inflation is the future of insurance exciting or bleak?
written by Sheila Wristberg
Oct 14, 2022
I had the honour of joining a panel discussion moderated by Michael J. McCord with other speakers, Hani Kurdi and Zainab Khatib at the Insurance Federation of Egypt's 4th Sharm Rendezvous last week. In our discussions on the the future of insurance globally and in the MENA region, we touched on cyber risks, climate change risks, ESG and sustainability, and industry talent and their impact on the insurance industry.
Cyber insurance risks are more prevalent than reported and are fast evolving, yet adoption of cyber insurance and other risk mitigating measures is low due to knowledge asymmetries and cost constraints of cyber security investment on businesses. Many cyber breaches go unreported by companies due to the reputational hazards associated with the disclosure of such breaches and the lack of mandatory reporting regulations. Consequently, companies are often unaware of the frequency and magnitude of breaches within their industries and regions and must internally access the perceived risks and compare the pros and drawbacks of investing in cybersecurity infrastructure vs insuring the risks.
Cyber attacks have increased in Sub Saharan Africa (SSA) and in West Africa following the Russian-Ukraine war. The increase in attacks include, but have not been limited to, data leakages (61%), insider threats from staff (43%), phishing (37%), cloud related attacks (34%) and ransomware (30%). Cyber exhortation has also been on the rise, with government and government-related entities being frequent targets. In SSA however, only 17 out of 54 countries have a complete national cyber security strategy.
Regulation on obligatory reporting and disclosures could give additional information on the nature and scope of cyber dangers to various industries, thereby helping companies identity their risk areas and enhancing the underwriting procedure.
The world is now better able to comprehend the science underpinning climate change, analyze its effects, and develop instruments to combat its causes and effects. Consequently, the debate surrounding climate change is shifting to climate adaptation and resilience. The effects of climate change have been experienced globally especially within the last decade, --floods in East Africa, cyclones and hurricanes in the Americas and East Asia, with developing nations being disproportionately impacted due to inadequate infrastructure investment, inadequate insurance coverage and relatively higher reliance of such countries on the weather and nature.
Insurance penetration in many developing nations is less than 2%, with equally lower rates of insurance coverage, compared to other regions, hence many lives, livelihoods and assets are uninsured in these countries. When tragic natural disasters occur, many people are forced to resort to out-of-pocket payments (with already restricted funds that would have otherwise been committed to health, education or food) to recover, restore and replace their assets and sources of livelihoods. Governments and international aid organisations are also required to intervene in many cases to help ameliorate the effects of the disasters.
As the world moves toward its net-zero emissions goal, insurers play a unique role by through the investment of funds and insurance of projects. This includes, but is not limited to, investing in low-carbon emission projects, incorporating environmental impact assessments in the underwriting process of infrastructure projects, rating sustainable projects more favorably and thus charging lower premium rates and deductibles, investing in green projects and green financial instruments. Insurers could also investing in infrastructure projects with the potential to reduce the impact of natural disasters (for instance funding the construction of storm drains in flood-prone countries could reduce the impact of perennial flooding, thereby protecting assets and lives and ultimately saving insurers money in claims payouts).
The role of insurers in now, and into the future will also involve integrating actionable ESG criteria and measures into their company's goals and forecasts. The ESG tenets and principles of a company should trickle down to the very lowest level and everyone, from the shareholders and board of directors to the two-week-old intern should have an appreciation of the sustainable goals of the company. The ESG principles that a company subscribes to should also be communicated to its external stakeholders such as suppliers and even clients. Insurers, by the very nature of their work, collaborate with multiple stakeholders with a broad spectrum of interests and could play a unique role by cascading sustainability goals into their broader insurance value-chains and ecosystems.
I am particularly interested in talent in the insurance industry so I gravitated towards this angle during our discussion.
The talent discussion is not new to the industry due to the historic structural barriers within the industry. The insurance sector has historically been considered an "old boys' club" with deals being typically negotiated on the golf course or over a handshake after drinks. Gender has over the years being an issue within the space as women historically took on on more administrative and clerical positions within the industry and were rarely represented on the boards and management of these companies. The issue of talent has evolved from gender to the issue of attracting young talent. Additionally, due to the technical nature of insurance policies and the widespread lack of trust in the industry, insurance has never been a popular career choice among many young people. As a result of the Covid-19 epidemic, "The Great Resignation" has impacted the entire globe since the beginning of 2022, as an increasing number of employees have resigned from their positions. The insurance industry has not been spared in this regard.
Employees who resigned cited a lack of career advancement, inadequate compensation, a lack of meaningful work, limited opportunities for career advancement, a lack of job satisfaction, a hostile work environment, inflexible work policies including remote work policies, and uninspiring leadership as reasons for leaving.
The insurance industry needs to recognize that working with Gen Z and millennial employees necessitates the use of distinct tools and motivators. These two generations appreciate community and have a strong desire to work hard and achieve success quickly. They are interested in leaders who are engaging and sympathetic, flexible work schedules, engaging work that utilizes their skillsets, and working for firms whose values line with their personal values.
Future competition from "Big Tech" companies and other "employers of choice" for the same skills also promises to exacerbate the "quality" talent shortage within the insurance business. To make the industry more attractive to younger talent, the industry must reinvent itself. Young talents are looking for open, collaborative environments where they feel heard, are using their skills and talents at maximum capacity and can identify with the values of their companies and bosses. Insurance is and has always been about risk mitigation and providing a protection gap in the day of losses. How about insurers sell that story better? Young people want to work for companies which show care and make a difference in the lives of millions of people globally. Why not introduce them to microinsurance, insurtech, cyber insurance, parametric insurance, data analytics and other emerging fields which are making insurance more inclusive and accessible?
Close to $20 billion has been estimated to be paid out by insurers in claims following the disaster caused by Hurricane Ian, why are insurers not amplifying that story? Parametric Agric insurance in several countries in SSA is providing farmers with a buffer when drought or floods wipe away their crops and livelihoods, that is another story worth telling.
Insurance is and has always been about protecting people, livelihoods and futures and providing calm assurance.
The industry needs to upscale its brand, amplify its voice and tell its story of what insurance does to protect societies and communities in the wake of natural disasters and other unforeseen circumstances.
Additionally, industry also has relatively low or no barriers to entry for women in many parts of the world- that is another story to be told. Compared to other industries, insurance employs an almost equal number of men and women globally - increased gender inclusivity. In the United States, the insurance industry has 60% employees being women. This should be amplified to young talents, especially women to let them recognize that they could potentially have a spot within the industry. What's more, the industry employs a diverse group of professionals- marketers, lawyers, actuaries, loss adjusters, claims personnel, accountants, data analysts, IT professionals and many more. There is room for everyone, regardless of background of study to find a place and thrive within the industry.
The future of insurance is an optimistic one. As the world faces uncertain times ahead, mitigating the risks that might arise from the uncertainty should be top of the mind for all leaders and insurance is a risk transfer mechanism that can be explored.
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