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As risk managers look out for potential threats, a report released Monday specifies areas insurers should keep an innovative eye on in the future.
In Deloitte’s “Strategic Risk Management in Insurance: Navigating the Rough Waters Ahead,” strategic risk is described as something that doesn’t always pose threats but can bring opportunities if recognized early, allowing a company to thrive in a new environment by adapting faster than competitors to a changing landscape driven by technology.
The report gives Blockbuster L.L.C. as an example of a company unprepared and unable to recognize the opportunity brought by technology, which instead caused the collapse of the one-time movie rental industry leader. The Blockbuster chain dominated the market until Netflix allowed customers to choose movies online that were then delivered to their home. Blockbuster failed to recognize Netflix as a risk to its strategy.
The report cites several other examples of emerging risks where insurers can use strategic risk analysis to capitalize on future opportunities:
• Driverless cars: Automated vehicles can significantly alter the price of insurance and coverage that is currently provided, while new safety technology can also affect loss frequency and severity. These changes allow insurers to alter pricing and even expand into different liability coverage.
• Medical breakthroughs: More effective ways to treat illnesses have changed how long people live, creating uncertainty for life and health insurance underwriting and pricing models. New 3-D printing technology, also known as “additive manufacturing,” may one day allow doctors to artificially generate organs for transplants. Insurers will need to adjust for ongoing extensions of life spans, and the economics of guaranteed-income features of longevity-driven annuities.
• New competition for insurance distribution: The U.K. insurance market has seen a number of competitors such as peer-to-peer insurance, where consumers create a social group online that can buy third-party coverage as a group; and social brokers, who negotiate insurance on behalf of groups of consumers, such as young safe drivers. These competitors could disrupt an insurer’s link to consumers.
Risk managers should consider taking a more assertive stance in addressing emerging strategic risks, a Deloitte Center for Financial Services report advises.