- Large corrections or adjustments in markets – such as in equities, bonds or credit – could bring litigation from investors and shareholders.
- Directors and officers may be held accountable if there has been a failure to foresee or disclose Covid-19 related risks. Increased scrutiny around how companies prepare for future events.
- Rise in homeworking, fast adoption of new technologies, potentially weaker controls and oversight make companies/customers more vulnerable to cyber scams, and other internal/ external crimes.
- Inadequate return to office plans could see employers face liabilities related to Covid-19 infections, employment practices and whistleblowing.
Top 5 risks in Financial Services
1. The Covid-19 risk landscape
2. Cyber security concerns grow
- Growing numbers and new forms of financial crime, driven by Covid-19. At the beginning of the pandemic, the number of cyber-attacks rose by over 200%.
- Seismic shift in the regulatory view of privacy and cyber security. Cyber resilience and business continuity a growing area of focus.
- Third party service providers can be a weak link in the cyber security chain.
- Investing in training helps minimize the human error at the heart of most cyber incidents.
3. Unintended consequences of innovation and new technologies
- Proliferation of new technologies will have a profound impact on the sector’s risk profile.
- Digital currencies are emerging as a new asset class. However, there is uncertainty around potential asset bubbles and regulation and concerns about money laundering, ransomware attacks, third party liabilities and ESG issues.
- Growth in stock market investing by small investors guided by social media, raises mis-selling concerns.
4. ESG factors take center stage
- Only a third of companies consider themselves to be very effective at managing ESG risk.
- Surge in ESG regulations and guidance means tougher disclosure and reporting requirements for companies.
- Litigation or investor, shareholder and activist actions increasingly focus on ESG topics such as climate change, pollution, diversity and even CEO pay.
- Elevating and identifying ESG risks through a business’ risk registers and committees, and making sure it is understood how they will play out in and out of the boardroom, is crucial.
5. The claims picture
- AGCS analysis of financial services insurance claims shows cyber incidents, including crime, ranks as the top cause of loss according to value.
- Growing compliance risk a concern as compliance issues are already one of the biggest drivers of claims. Violations can be contributing factors to each of the top 10 causes of loss by severity.
- Covid-19 claims activity to date limited. However, uncertainty over the pandemic and economic fallout continues to pose a risk for lending institutions.
Top 10 causes of loss by value
6. Market dynamics – insurance outlook
- Loss activity and Covid-19 uncertainty have contributed to a recasting of the insurance market characterized by adjusted pricing and an enhanced focus on risk selection by insurers.
- A growing number of companies are partnering with insurers on alternative risk transfer solutions to manage risk and regulatory capital requirements
Photos: Adobe Stock
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