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Technology stokes insurers’ fears

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Cyber risk, political interference and macroeconomic volatility are among the main sources of anxiety for Australian insurers, a survey by PricewaterhouseCoopers (PWC) and the UK-based Centre for Financial Innovation shows.

The biennial Banana Skins report’s Australia edition reveals concerns about cyber risk have jumped from 19th place in 2011 to 13th in 2013 and No.1 this year.

PWC Australia Insurance Leader Scott Fergusson says the response reflects a sector that is simultaneously enabled and disrupted by technology.

The increasingly digital nature of product delivery provides a “richness and volume of consumer data”, which makes insurers prime targets for cyber crime.

“Insurers have a vast amount of information that is valuable to cyber criminals, including medical records, banking and credit card details and personal identity data,” Mr Fergusson said.

One survey respondent told researchers their company is “repelling 20 serious attacks each day”.

“The ongoing challenge will be ensuring defences keep pace with the threats as they evolve.”

The Australian industry’s survey response is dominated by concerns about technology, with distribution channels, change management and product development among the top seven “banana skins”.

Anxiety at the pace of change stems from concerns over business models remaining viable amid significant investment in disruptive technology.

“The industry is on the precipice of an enormous amount of change, largely being driven by digital innovation,” Mr Fergusson said. “The impact of wearable devices and connected cars will be significant.

“Once consumers get a level of comfort around sharing data with insurers, the expectations of more personalised and customised products and premiums will quickly follow.”

Concerns about business practices have moved up to No.4 in the rankings from No.9 in 2013 and 23 in 2011.

“There is a heightened awareness among respondents around issues of conduct risk and mis-selling, and the impact these can have on customers and company reputation,” Mr Fergusson said.

On the whole, he believes the news is good for the Australian insurance industry – but it must be aware of a period of “seismic change”.

“The long-term prospects for insurers are positive as people live longer and have more wealth to protect,” Mr Fergusson said. “Yet they also face the disruptive impact of new technology, changing customer expectations and enduring economic uncertainty.”

See earlier story