Insurers cite new risks as solvency disclosures reveal shift in focus

Analysis of the early Solvency II disclosures of 50 insurers across the UK and Ireland has revealed considerable shifts in the risks of most concern in the industry.

According to the study, conducted by LCP, 30% of insurers identified Brexit is a key risk, down from 60% last year, while climate change and cyber risk are both rising in priority at 46% and 52% respectively.

A key new risk for insurers is that of ‘unanticipated coverage’ -- something highlighted for many insurers by the COVID-19 crisis. They are also concerned about conduct risk, following the recent publication of the FCA’s interim report into general insurance pricing practices.

COVID-19 has not dampen expectations of meeting regulatory capital requirements for 52%. The remainder either remained silent or said there was still too much uncertainty to confirm if they would be able to meet the requirements.

Cat Drummond, a partner in LCP’s Insurance Consulting team, commented: “This analysis provides an interesting early view into how COVID-19 has shifted the insurance landscape. Concerns around the impact on claims experience and investments are rightly top of the agenda. The impact of the pandemic will have severe fallout for a number of business lines including travel, business interruption and income protection.

“Brexit appears to be less of a key risk in the minds of insurers as it is replaced with concerns around cyber-crime and consumer protection. The issue around consumer protection is likely to rise even further up the agenda when the FCA publishes its final report into the pricing of home and motor insurance.”

Assessing exposure (Source: LCP)

Insurers continue to be sufficiently capitalised with eligible own funds that are, on average, nearly double their Solvency Capital Requirement (SCR) at their 2019 year ends.

85% firms mentioned COVID-19 and its possible impact on claims experience. However, only 37% gave further details around how they are managing this such as assessing their exposures by lines of business or providing commentary on the expected impacts.

54% of firms mentioned the impact that market turmoil as a result of the pandemic is having on their investment holdings.

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