In addition to a global pandemic and major natural catastrophe, global insurance executives ranked cyber warfare among the extreme risks that could rattle the industry in a new survey by Towers Watson (TW).
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The inclusion of cyber warfare ahead of more traditional worries like a banking crisis and an economic depression highlights the increased awareness and level of concern in the corporate world of cyber issues.
“Much as we would have expected pandemics and natural catastrophes to figure prominently in insurers’ extreme risk thinking, the high rankings of concerns such as cyber-warfare and a major data compromise in the cloud (user-submitted idea) illustrate how the industry is keeping up to date with risk assessment,” Stephen Lowe, senior consultant of risk consulting and software at Towers Watson, said in a statement.
The top extreme risk listed by insurance execs was a pandemic that would spread a fatal disease around the world, impacting people, plants and animals.
The No. 2 risk was a major natural catastrophe such as a confluence of major earthquakes, tsunamis, hurricanes, floods and/or volcanic eruptions.
Insurance executives listed a food/water/energy crisis as their No. 3 concern. Towers Watson said such an event would impact morbidity and mortality, but also create “investment winners and losers.”
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Interestingly, cyber warfare was the No. 4 concern. This was described as computer sabotage/espionage on a major scale, with “severe damage to infrastructure, financial, medical or defense systems.”
The user-submitted No. 5 risk was that a large quantity of personal, government or business data stored in clouds are found to be “hacked, compromised or misused.”
A long list of high-profile cyber intrusions on media companies, banks, energy producers and government agencies have raised awareness of the risk of cyber attacks in recent years.
In the Towers Watson survey, hacking concerns were ahead of a deep and protracted economic depression; a banking crisis like the scary 2008 meltdown; an extreme event that causes property damage, business interruption and widespread death; a rise in extreme weather; and a sovereign default.
Towers Watson said a sovereign default would likely spark a regional insurance crisis and increase M&A activity due to “forced disposals from banking groups.”
“The kinds of risks that could wipe out an insurance business do inevitably evolve over time, so we were very encouraged to see this degree of engagement from a broad sample of the industry,” Lowe said.