Cyber risk the number one concern for UK insurers, says report

A survey by think tank the Centre for the Study of Financial Innovation (CSFI) and PWC identified a "high level of anxiety about cyber risk, specifically software failure and data security breaches" among insurers across the world. However, this risk was identified as the number one concern for insurers in the UK, North America and Africa, the survey report said.

The 'Banana Skins' survey (44-page / 3.68MB PDF), conducted in March and April this year, gathered 806 responses from industry on attitudes to risk, with respondents based across 54 countries.

"The chief concern is the security of the ever growing volumes of data that insurers hold in cloud-based storage systems," the report said. "For many, major breaches are inevitable; the question is how much damage they will cause."

Data security concerns could be exacerbated by regulators' increasing demands for insurers to "store more and more details about their clients", according to the report. Insurers are "vulnerable to the growing sophistication of cyber criminals and the constantly changing nature of the threat", it said.

"The impact of a successful attack could be very significant, from the costs of additional security to service disruptions, the loss of intellectual property or sensitive information, and compensation claims or fines," the report said. "The biggest risk of all could be a loss of trust from customers."

The challenge of underwriting cyber risk, and the potential cost to insurers if they are exposed to claims that result from major cyber attack incidents, is another risk identified in the report.

The survey report also highlighted other risks insurers see stemming from technological change.

"Much of the industry is struggling to keep pace with new technologies, and incumbents feel threatened by new entrants unburdened by legacy systems," the report said.

"Developments such as digitisation, the internet and social media are already profoundly influencing price and demand for insurance products, and the means customers use to interact with their insurance providers," it said. "As technology advances and markets become less opaque and more connected, there could even be a reduction in the size of the traditional business. But there will also be new types of risks, from data security to nanotechnology and driverless cars. If conventional insurers do not meet these changes, the risk is that new entrants or 'disrupters', such as the big tech firms, will edge them out."