Cyber, Climate Change, and Environmental Social and Governance (ESG) issues remain significant and constantly evolving areas of risk which will continue to shape the international insurance landscape going forward.
In 2020, the COVID-19 pandemic certainly had the greatest impact. Every operator, in every single field, has had to deal with the health emergency. Not least, the insurance sector has found itself (and will continue to find itself) facing huge, accelerated challenges to its normal modus operandi in order to adapt to the turmoil and destruction the pandemic has brought with it and will leave behind, once it is over.
Based on the above, the resumption of business as usual for insurance companies is envisaged with a particular focus on one area: digitalisation. Now products and back-office procedures can be managed online in order to meet the needs of clients who require the rapid conclusion of new contracts.
The digitalisation of the multiple branches of the global economy (from domestic to corporate) brings with it an increased risk of cyber "crimes". Phishing and brute force attacks are just some of the risks that companies face. The challenge for insurance companies is to offer increasingly advanced products in this area of risk, which is not yet fully developed.
Government regulatory bodies and law enforcement agencies worldwide have taken numerous initiatives to tighten the existing data security and protection measures. Additional requirements provided under new pieces of legislation on data protection, such as the European Union’s (EU) General Data Protection Regulation (GDPR), are increasingly persuading insurance providers to focus on cyber insurance products. Meanwhile, in connection with the outbreak of the COVID-19 pandemic, policyholders, brokers, insurers, and agents showed increased attention toward cyber insurance coverage. At the same time the increasing level of digitalisation has also led to a tremendous growth in the rate of cyberattacks, more so during the COVID-19 pandemic. Hence, the cyber liability segment is expected to hold a progressively larger market size up to 2025.
D&O insurance coverage
In addition, in 2021 it will definitely be necessary to monitor the market request for D&O insurance coverage. This is growing steadily throughout Europe, due to the significant increase of litigation involving the companies' executives, often resulting in securities or derivative claims from shareholders.
Also, the effect of the COVID-19 pandemic outbreak is an important factor to be considered in connection with D&O Policies. The current pandemic is likely to lead to a significant increase in litigation against D&Os as potential claimants scrutinize the way Boards guide their companies through the pandemic crisis, and top management is being put under huge pressure to take wide-ranging decisions to protect the interests of various stakeholders under constantly changing circumstances.
Furthermore, given the significant recent increase in insolvency proceedings deriving from the heavy impact of the pandemic crisis on the markets, one of the "hottest topics" of the post-COVID-19 era with respect to D&O insurance coverage relates to the dilemma concerning whether or not insurers may include in their policies specific exclusions aimed at carving out from coverage those liabilities for D&O claims which arise from or relate to the entering by the policyholder into some insolvency procedure, irrespective of whether such procedure started before or after policy inception.
In fact, the application of such a coverage exclusion in practice could lead to situations where the relevant D&O would lose their right to coverage as a consequence of circumstances falling outside their scope of control, regardless of how diligently the insured risk was represented at policy inception.
Another issue that will certainly remain under discussion is business interruption and the question "Is the insurance sector ready to insure against business interruption from pandemics?" Whilst there are already some examples of insurance companies seeking to address the need for business interruption coverage due to pandemics to date, there are still very few reports of insurance products being available in the marketplace. This is likely to change however as further data on the development of pandemics becomes available. The likely next steps could be to develop business continuity planning, supply chain management and, finally, communication.
Last but not least, is the topic of parametric policies. This is one of the main global trends in insurance innovation that offers the payment of a predetermined amount based on the probability of a predefined event occurring.
The peculiarity of a policy, whose premium is calculated according to the probability of the event, has the benefit of being potentially attractive in a pandemic and post-pandemic era. In addition, these policies have the potential to fill the gaps of more traditional products albeit they should not be seen as a substitute for the latter.
Read our full report 'Looking Ahead in the Insurance Sector'.