Climate Change, Not Disasters, Tops Insurers' Risks

Ernst & Young issued a report yesterday that calls potential climate change the greatest strategic risk now facing the property/casualty insurance industry. Demographic changes, taking priority for the life insurance industry, ranked second, with catastrophic events ranked third.

The company said interviews with more than 70 analysts worldwide contributed to the "Strategic business risk 2008" study, which examined trends and uncertainties affecting the global insurance sector in the next five years. The study identified macro, sector-specific, and operational risks. "Change is constant," said Peter Porrino, global director of Insurance Services at Ernst & Young. "Ten years ago, would climate change have been top of anyone's risk list? Demographic change was obvious back then, but it is now a reality. Strategic risks vary for individual companies, but for the insurance sector as a whole, these are the threats the experts say will have the greatest and most far-reaching consequences. Insurers have to deal with them now as they will change the business environment, the competitive pressures, and the business opportunities. They have to view risk management as a way to improve operations, financial performance, and shareholder value."

The rest of the top 10 risks are: emerging markets, regulatory intervention, channel distribution, integration of technology with operations and strategy, securities markets, legal risk, and geopolitical or macroeconomic shocks.

The analysts identified five emerging risks just outside the top 10: over-reliance on model-based risk management, threats to industry reputation, losing the war for talent, increasing exposure to global regulatory heterogeneity, and the possible emergence of entirely new risks.

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