Cyber security risks and business interruption are the most serious threats facing 37% of insurers worldwide, according to the Allianz Global’s Risk Barometer 2019. 2,400 insurers from 86 countries participated in the survey. Natural disasters took the third spot in this top 10 list of threats.
Business interruption and cyber risks most serious loss items
The average claim for a business interruption is $3.4 million. In 2014, that figure was $2.4 million. In serious events, losses can run into the billions of dollars.
Many scenarios can cause business interruptions, but physical damages caused from fires or weather events are not the cause as often as you may think. Many businesses face interruptions caused by breakdowns in their computer systems, quality problems that result in product recalls or political unrest, demonstrations or terrorism. For example, in late 2018, French shopkeepers were forced to close their stores for four weekends because of the” gilets jaunes” protests, which are estimated to have cost around $1.1 billion in losses.
Many insurers estimate the risk of cybercrime to be equal to the risk of business interruption. In fact, a cyber-related risk often lies at the root of a business interruption. Cyber risks are especially feared since many companies have become highly dependent on IT, data and service platforms.
Cyber risk often the cause of internal disruptions
In 2017, the “Wannacry” and “Notpetya” malware attacks stung hundreds of production companies and logistics service providers. Nevertheless, most cyber risks are not the result of deliberate external attacks, but of system malfunctions. The total losses caused by these types of incidents is growing and is now estimated to exceed $600 billion annually.
Managing the risks
Other risks insurers are concerned about include those related to political changes and evolving laws and regulations. Such risks include possible trade wars, tariff barriers and Brexit.
Technical developments are offering companies many new opportunities, including opportunities to manage risks. However, these developments come with risks of their own. Take security risks, for example, since many devices are interconnected.
Innovations in risk analysis
Virtually all insurers are currently working to innovate their products and processes or are preparing innovative measures. This is part of their pursuit of “operational excellence” and is mainly characterized by digital technologies, including Artificial Intelligence. For more information on this, read our Digital Transformation in Insurance report.
Automatic risk assessment using Artificial Intelligence and Machine Learning
With Artificial Intelligence, it is possible to continuously monitor risk developments and to integrate risk-related information in systems used for risk analysis and fraud detection.
Artificial Intelligence can gather information and apply it directly to specific risks at a company, in a sector or in a region, helping shape responsible decision-making within a company’s strategy and risk appetite frameworks.
When combined with machine learning, AI develops ever more specific expertise which can be applied immediately in business decisions.
Quicker handling of honest claims
The use of AI will result in better and faster decisions in paying claims related to business disruption, yielding benefits to everyone who has suffered a loss. In the event of class actions, such as interruption to businesses because of political unrest or a natural disaster, the deployment of AI avoids delayed settlement of claims. Following automated analysis, legitimate claims can be immediately settled. Furthermore, false claims can be filtered out more easily.
In a world with rapidly changing risks and high customer expectations, the deployment of Artificial Intelligence will help promote honest and affordable insurance policies for everyone and yield improved returns for the insurance companies.
