Risk used to be relatively easy. If a local bakery wanted insurance, you would have to think about the structure, location and operation and would have a pretty good idea of their risk profile. Today, the same business is far more complicated and interconnected:
- Third-party point-of-sale systems are used to process transactions
- Companies have a web presence and do a lot of online and even interstate sales
- They manage payroll, benefits, and accounting using software-as-a-service providers
- They have supplies for special boxes, ingredients and gifts sourced from all over the world
Each of these additional connections and interconnections increases the company’s potential business interruption, liability and sometimes even property risk.
A spider web full of risks
This shows that risks are omnipresent today and are constantly growing. The annual Accenture Pulse of Change Index found that the rate of change affecting businesses has increased steadily since 2019 – 183% in the last 4 years. The risk landscape has never been more complex – a veritable spider web of interconnected disruptions. This is clear in our yearbook Accenture Risk Survey Nearly nine in ten (88%) insurance respondents say complex, interconnected risks are emerging faster than ever before. Insurers identified financial, regulatory and compliance and operational risks as the most increasing risks, all of which influence one another. Additionally, 84% of insurers say risks from other sectors are now impacting their business as companies and industries become more interconnected. Our global study participants underscore the severity of risk interdependencies and note that individual risks can quickly transform into strategic and existential threats.
When the business of risk is a risky business
When it comes to critical risks such as cyber or NatCat risks, there is a lack of certainty in accurately forecasting whether losses will exceed premium fees, resulting in insurers increasingly choosing to withdraw and limit coverage. An extreme example of this new risk landscape would be examining the potential impact on the cyber insurance industry if one of the major cloud providers fails. This could be worse than a NatCat 5. Given that insurers are affected by risk from three different perspectives: 1) as risk carriers ensuring risk transfer to insureds, 2) as investors with large premium amounts invested in these sectors, and 3) as companies with their own operational risks, risk management capabilities that can assess, balance and respond to this complex environment become even more critical to success.
To illustrate this, imagine an event such as a harbor fire that disables a large pier. The carrier may bear this core risk and have an insured claim. You may also have other insured parties affected by the delay in delivery of goods. Because of the financial impact, the airline may also invest in some of these companies that will be impacted. And the carrier may experience delays in equipment or deliveries, which also impact operations.
Risk management capabilities behind the curve
Despite their efforts, insurers are not adequately prepared for this situation for several reasons. First, they lack the consolidated data to assess the risks. 72% of our insurance respondents say their risk management capabilities and processes have not kept pace with the rapidly changing landscape. Cloud use to create value from data is low at 30%, but this is likely due to insurers not having enough risk data in the cloud. Core data is not captured, risk characteristics are included in PDFs, and manuscript notes are not easily accessible. 22% cite data quality as their biggest challenge when it comes to gaining insights from data. 18% cited even more basic data availability.
Second, even if they have the data, they don’t have the right access or tools to evaluate it. 17% of them management they still say Do not achieve satisfactory results Eliminate data Silos. Therefore, despite the existing data, they are still not readily available for practical use, let alone interpreting and gaining insights from them.
And third, they lack the skills and technology to exploit them. 22% cite lack of relevant skills as the biggest challenge, while 17% cite outdated technology as the biggest barrier.
Risk management leaders are emerging
There is hope for better risk management in the future to meet these needs. 28% of insurers are already starting to use generative AI to process and create value from data, which is promising at this early stage. Additionally, our study identified a group of risk leaders (14.5%) in our global respondent base with advanced risk skills. The difference between leaders and laggards when it comes to risk lies in both the speed of identification and, more importantly, the speed at which action is taken. These risk leaders are better at identifying and mitigating threats than counterparts with less sophisticated skills. They are also more likely to take actions that strengthen their ability to take risks and are far more satisfied with those actions.
To support these leaders, our Drive the future of insurance through technology The report identifies technology and platform modernization and predictive analytics as key drivers of profitable growth for insurers. Eliminating technology debt could be the key KPI of generative AI.
Connect the dots to strengthen the company
To what extent does risk management permeate the entire insurance company? How well do you know the exposures? And what is the reaction speed once it is detected?
This depends on the integration of risk processes, resources and capabilities. To give just one example: ensuring policies and renewal profiles are updated appropriately. Although 75% of the study’s insurance participants say that organizations outside of the risk function are becoming more aware of the impact of new and interconnected risks, much more needs to be done to create an organizational risk culture and mindset. The same percentage (75%) say the risk function is struggling to support the entire organization in developing a risk mindset, and only 36% are very satisfied with the entire organization strengthening its risk capabilities to improve organizational resilience.
Turn risk into opportunity
In response to a challenging risk environment, insurance risk functions are prioritizing several initiatives. Top priorities include implementing technology to improve decision-making (36%), introducing new capabilities into the risk function (36%) and informing the board and C-suite of emerging risks (36%). While this is all good, to achieve maximum impact, higher-level risk management activities must focus on bringing identification and response to risk issues to the front line of underwriting and claims processes so that the risk function can better contribute to business success.
However, insurance risk functions may be juggling too many priorities. Also symptomatic of this is that the majority (78%) of insurance respondents want their teams to spend more time on value creation and innovation, which would be the next frontier, but there are barriers. Over seven in ten (73%) say risk professionals are not sufficiently connected to the organization to do this, and 80% say balancing existing roles with value-adding activities is a major challenge.
A “back to the future” model is no longer useful
We can no longer allow the past to predict the future. Traditionally, insurers set their rates based on previous forecast models. This alone is no longer sustainable.
The importance of data cannot be overstated – both for identifying and mitigating risks and for decision making when it comes to an action plan at both the corporate and individual transaction levels. According to our Transform claims and underwriting with AI According to the report, insurers have access to an untapped asset in the vast amounts of structured and unstructured data they collect from items such as vehicle telematics devices, Internet of Things devices, customer interactions, third-party databases and more.
With the right data lake architecture in place, silos can be eliminated, data ingestion can be accelerated, and data can be connected across departments to drive predictive analytics. The ideal situation is to be able to provide risk-focused insights to underwriters, claims analysts and frontline decision makers to make more informed decisions. In this way, we can enable the company to truly manage these interrelated risks. Without it, the web of interconnected risks will only continue to grow and we will be blinded to the real risks we face. This is not a risk that can be easily avoided or transferred. Things can only get better with action.
Our 2024 Accenture Risk Survey concludes that risks are everywhere and individual risks are now influencing each other, creating a web of threats.
