Misinformation Tops Insurer Concerns in 2024, Outpacing Even Extreme Weather
The insurance industry faces a rapidly evolving risk landscape, with misinformation emerging as the top concern in 2024, surpassing even extreme weather events, according to the World Economic Forum Global Risk Report. Just a decade ago, extreme weather held the top spot in a similar survey, highlighting the significant shift in perceived threats. This change underscores the growing influence of false and misleading information on global stability and the insurance industry’s vulnerability to its pervasive effects. A recent Baker Tilly webinar underscored these concerns, placing misinformation at the top of a list of key risks that also included extreme weather, societal polarization, cybersecurity threats, armed conflict, dwindling economic opportunity, inflation, and increasingly complex industry regulations.
This rise of misinformation from a fifth-place concern just ten years ago to the primary risk facing insurers today reflects the profound impact of the digital age. The rapid spread of false narratives through social media and online platforms has the potential to destabilize markets, incite social unrest, and significantly influence public opinion, impacting everything from consumer behavior to political outcomes. For insurers, this presents a multifaceted challenge, potentially affecting underwriting decisions, claims processes, and overall risk assessment. The proliferation of misinformation can lead to inaccurate risk profiles, fraudulent claims, and reputational damage, making it a critical area of focus for the industry.
Beyond external threats like misinformation, insurers also face crucial internal risks. John Romano, a principal in Baker Tilly’s financial services risk advisory practice, emphasized the need for insurers to address internal vulnerabilities. He highlighted three key areas of concern: talent succession, compliance and governance, and strategic and data management. The challenge of attracting, retaining, and developing skilled employees poses a threat to operational efficiency and long-term stability. Weaknesses in corporate governance structures can lead to poor oversight and flawed decision-making, increasing exposure to a range of risks. Finally, missteps in strategic planning and data management can significantly hinder an insurer’s ability to adapt to a changing market landscape and effectively leverage the vast amounts of data at their disposal.
Data governance, according to Romano, sits at the core of many of the risks confronting insurers. Data is not merely an asset; it is the very foundation of their operations, driving crucial functions such as underwriting, claims processing, and customer interactions. The ability to collect, manage, analyze, and protect data is paramount for insurers to accurately assess risk, make informed decisions, and provide tailored services to their clients. In the age of misinformation, robust data governance is even more crucial, allowing insurers to distinguish between credible information and misleading narratives, ensuring the integrity of their risk assessments and claims processes.
The rapid adoption of artificial intelligence (AI) within the insurance sector presents both opportunities and challenges. While AI offers the potential to streamline operations, enhance decision-making, and personalize customer experiences, it also introduces new complexities. Romano notes that insurers are increasingly exploring, piloting, and implementing aspects of AI, often without explicitly labeling it as such. This underscores the importance of establishing a comprehensive AI governance framework to manage the growth and implementation of these technologies effectively. Such a framework should encompass a corporate-wide AI strategy, well-defined policies and procedures, and a centralized center of excellence for AI knowledge, ensuring responsible development, deployment, and ongoing monitoring of AI systems. This proactive approach will enable insurers to harness the benefits of AI while mitigating potential risks and maintaining compliance with evolving regulations.
Looking ahead to 2025, Romano emphasizes the critical importance of third-party risk management for insurers. With increasing reliance on external vendors and partners, insurers are exposed to a range of potential risks, including data security breaches and regulatory compliance failures. A robust third-party risk management program is essential for mitigating these vulnerabilities. Such a program should include thorough due diligence processes, ongoing monitoring of third-party performance, and clear contractual agreements that address data security, compliance, and other crucial aspects of the relationship. By proactively managing third-party risks, insurers can strengthen their overall risk profile and protect themselves from potential disruptions and reputational damage.