Digitisation and smart technology bring the insurance industry considerable opportunities and scope for product innovation but require careful reserving and risk management. These views were expressed by Paul Fisher, Deputy Head of the Prudential Regulation Authority (PRA) and Executive Director of Insurance Supervision, highlighted in a speech to the Economist’s Insurance Summit 2015.
New technology has driven changes to many insurers’ business model. Increasing use of smart technology, ‘black boxes’ and cloud-based infrastructure are all at the forefront of new product development in the industry. In many respects, the increasing use of technology brings genuine customer benefits. However, Paul Fisher warns that the pace of change can be challenging in terms of risks. Insurers are increasingly considering how best to protect corporates and individuals against cyber-attacks whilst also being exposed to similar attacks themselves. Firms need to be aware that there are significant challenges in obtaining data for losses from cyber-attacks which makes it difficult to quantify reserves and develop models.
Insurers entering the cyber liability market will be expected to demonstrate to the PRA that the risks underwritten are thoroughly understood and that they have adequately reserved for those risks. The PRA is increasingly using business model analysis and will expect firms to be able to show how their model is sustainable.
For further information: PRA insurance chief highlights need to tread carefully when modelling cyber risks, 3 March 2015