Climate Change Greatest Strategic Risk to Insurance Industry

Ernst & Young report highlights top ten risks to insurers

NEW YORK, March 12 /PRNewswire/ -- Potential climate change is the
greatest strategic risk currently facing the property/casualty insurance
industry, with demographic changes taking priority for the life insurance
industry, according to a new study by Ernst & Young, closely followed by
demographic change and catastrophic events.
For the new study, Strategic Business Risk 2008, Ernst & Young and Oxford
Analytica interviewed more than 70 industry analysts from around the world to
identify the emerging trends and uncertainties driving the performance of the
global insurance sector over the next five years. The study identified risks
in three broad areas -- macro, sector-specific and operational threats. It
identified the top ten risks and five emerging threats.
Peter Porrino, Global Director of Insurance Services at Ernst & Young,
comments, "Change is constant. Ten years ago, would climate change have been
top of anyone's risk list? Demographic change was obvious back then, but it
is now a reality. Strategic risks vary for individual companies, but for the
insurance sector as a whole these are the threats the experts say will have
the greatest and most far reaching consequences. Insurers have to deal with
them now, as they will change the business environment, the competitive
pressures and the business opportunities. They have to view risk management
as a way to improve operations, financial performance, and shareholder value."
The top ten risks are:
1 Climate change: long-term, far-reaching and with significant impact on
the industry
2 Demographic shifts in core markets: offers business opportunities but
risk that other sectors will capitalize first
3 Catastrophic events: rising costs and serious impact on earnings for
insurers
4 Emerging markets: risk and opportunity but competitive threat from new
players
5 Regulatory intervention: increased scrutiny impacting on operations and
practices
6 Channel distribution: technology is changing the way insurance is sold
and purchased
7 Integration of technology with operations and strategy: an enabler to
keep pace with competition but lack of integration is a threat at the
strategic business level
8 Securities markets: changes in capital providers and the way capital is
entering the insurance industry are causing major changes in the
industry
9 Legal risk: significant and unexpected change in the legal environment,
such as government legislation or evolving case law, will continue to
have a critical impact on the insurance industry
10 Geopolitical or macroeconomic shocks: likely causes unknown but
consequences potentially severe.

Many of these risks are interlinked, with the consequences from one risk
having direct impact on others. The analysts have told Ernst & Young these
are the strategic risks that industry leaders must manage if they are to
maintain dominant competitive positions, raising questions about how these
risks will change what companies offer customers, the way they offer services
and where.
The analysts also identified five emerging risks, just outside the top
ten, which have the potential to become as significant during the next five
years. These are: over reliance on model-based risk management; threats to
industry reputation; losing the war for talent; increasing exposure to global
regulatory heterogeneity; and the possible emergence of entirely new risks.
Peter Porrino concludes, "As the insurance environment becomes more
complex companies need to shift from traditional risk management approaches to
integrated processes that add greater value. Understanding how to respond to
current trends is paramount for insurers as they seek to manage risk, optimize
performance, and increase operational effectiveness. The top three risks --
climate change and demographic shifts in core markets, and catastrophic events
-- are far reaching social and environmental trends with complex long term
ramifications for the industry as a whole."
About "Strategic Business Risk"
The research report sought the views of more than 70 analysts from around
the world. They came from over 20 disciplines that shape the business
environment, including: law, finance, the sciences, business strategy,
geopolitics, regulation, medicine, economics, and demographics. They were
drawn from 12 of the world's most important sectors: asset management,
automotive, banking and capital markets, biotechnology, consumer products,
insurance, media and entertainment, oil and gas, pharmaceuticals, real estate,
telecommunications, and utilities. Interviews were open ended and no
predetermined list of risks was used. Each analyst was asked for his or her
own evaluation of the most important strategic challenges facing global
businesses.
About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and
advisory services. Worldwide, our 130,000 people are united by our shared
values and an unwavering commitment to quality. We make a difference by
helping our people, our clients and our wider communities achieve potential.
For more information, please visit www.ey.com.
Ernst & Young refers to the global organization of member firms of Ernst &
Young Global Limited, each of which is a separate legal entity. Ernst & Young
Global Limited, a UK company limited by guarantee, does not provide services
to clients.
This press release has been issued by EYGM Limited, a member of the global
Ernst & Young organization that also does not provide any services to clients.
About Ernst & Young's Global Insurance Center
The Center is the hub of the Ernst & Young network of professionals
dedicated to serving the global insurance market and connects our people
around the globe, sharing information and experience on current and emerging
industry issues. The goal is to help our global insurance clients address
their complex issues by drawing on our broad range of services including:
assurance, tax, actuarial and risk management, regulation and compliance,
internal audit, finance and performance management, transaction advisory
services, and technology advisory.
About Oxford Analytica
Oxford Analytica is an international consulting firm drawing on over 1,000
senior faculty members at Oxford and other major universities and research
institutions around the world. It acts as a unique bridge between the world
of ideas and the world of enterprise. Its clients number some 50 governments
and international institutions and over 150 Fortune 500 global corporations
and financial firms.
SOURCE Ernst & Young

Katie Johnston of Ernst & Young, +1-212-773-7194, katie.johnston@ey.com; or
Jennifer Kuhl of Peppercom for Ernst & Young, +1-212-931-6111,
JKuhl@peppercom.com