Dangerous Risks 2024

By Dave Ingram and Max Rudolph

Risk Management, May 2024

The world in 2024 seems to be on the brink with wars and elections threatening to upend some longstanding regularities. The Dangerous Risks survey suggests that insurance industry concerns have shifted back to more traditional issues after several years of turmoil. Risks like inflation, ability to hire, and employee retention that were top concerns in the 2022 and 2023 survey have receded. For 2024, the top risks are all things that we have seen over and over for many years: Cyber, profit, strategy, IT, and claims.

Participation was down to about 150, after two years with over 200 participants, in the seventh year since 2017 that we have conducted this poll. This year, we trimmed the starting list of risks to 48—down from over 60 in the past two years.

Ability to hire dropped from 8th to 25th place and employee retention went from 5th to 27th, suggesting that both risks have substantially abated. IT/systems and technology gap went from 6th to 4th place, reversing last year’s move and finishing back in the top five for the sixth time in the seven-year life of this poll.

Top 10 Risks

1. Cybersecurity and cybercrime (Up from #2 last year and a top-5 risk all seven years of this survey): Insurers had a bad year in 2023 with several large life insurers with pension businesses hit by MOVEit file transfer cyberattacks and health insurers experiencing a significant number of ransomware attacks.
2. Pricing and product line profit (Up from #10 in 2023 and a top-10 risk in all seven years): In 2022, earnings were off by 10% compared to 2021 for the entire insurance sector. Through mid-year 2023 aggregate earnings have taken another step downward. Claims continue to surprise, and premium increases have not been enough to counteract. Higher interest rates can help with earnings if insurers can hold onto customers in this environment, but rates are likely to come down as inflation fears ease.
3. Strategic direction and opportunities missed (Up from #9 last year): This was a top-5 risk pre-COVID in 2018 and 2019. Now that we have survived the pandemic, this risk has moved back into the top 5 because we are back to worrying about strategy again. People are expecting that new strategies are in order, but no one is sure what those changes need to be, and they are not at all confident that anyone at their company knows either.
4. IT/Systems and technology gap (Up from #6 in 2023): This risk has been in the top 6 for all seven years of our survey. In 2023, the rise of artificial intelligence into public prominence has added to the gap that most insurers see between their own IT capabilities and that of the best in class of their competitors. Now in addition to the cost and time constraints of resolving legacy issues, there is an immense talent/knowledge shortfall of people who understand both AI and insurance.
5. Runaway frequency or severity of claims (Up from #7 last year): Insurers have seen claims increases in both frequency and severity in 2022 and 2023 in almost every line in almost every market. We cannot just point to a few mega storms. And though the inflation rate has abated in some markets, insurers are not sure that they have yet seen the full impact of the inflation that has already happened upon their claims reserves.  The only bright spot has been the end of the excess mortality claims to life insurers from COVID.
6. Legislative and regulatory (Up from #14 in 2023): Regulators have signaled that they are developing sweeping new regulations for the insurance industry regarding AI, solvency standards, climate disclosures, long-term care, consumer protection, and fair access to insurance. Each different change comes with its own implementation issues and uncertainty around unexpected consequences.
7. Natural catastrophe (Up from #26 last year): Mother Nature found another way to create property insurance claims in 2023 with over $50 billion of losses from severe convective storms and hail in the U.S. alone. This makes 2023 another high year for natural catastrophe claims without a major hurricane. This leads P&C insurers to infer that their business is even more risky than was previously thought.
8. Emerging risks (Up from #19 in 2023): This is the ultimate indication that the survey participants see 2024 as uncertain. They see uncertainty in the levels of potential losses from several ongoing risks and they see a significant chance that something unforeseen will create additional major losses.
9. Reputation risk (Up from #20 last year): Businesses found in 2023 that reputations are more fragile than they ever thought. They can experience reputation issues with both sides of the political spectrum leaving only a narrow path somewhere in the middle to completely avoid issues. The biggest reputation story of the year was the commercial that caused the downfall of the US’s most popular beer brand. This is the first time that reputation risk made it to the top 10.
10. Interest rate changes (Down from #4 in 2022): Increases in interest rates drove market value losses in insurer investment portfolios but also decreased the current value of deferred payments to insureds in 2023. Life insurers saw steady improvement in profitability throughout the year along with increased demand for products that offer a higher interest return to policyholders. P&C companies saw earnings on their assets backing reserves and surplus rose for the first time in more than a decade. It is unclear whether respondents are worried about the risk of interest rates returning to near zero levels, or the possibility that rates may spike up much farther leading to high customer churn.

Largest Advances in Ranking

Geographic concentration: Jumped from #47 to #11. This is related to natural catastrophe and runaway claims risks which each were in the top 10.

Terrorism: Up from #72 to #45. Survey respondents and their businesses may seem remote from terror attacks but the increase of both frequency and severity of attacks in 2023 drove this advance in rank.

Property market/commercial mortgage exposures: Rose from #51 to #28. Office properties remain underoccupied even with back-to-the-office movement. Refinance of commercial mortgages will happen gradually and will force a reckoning.

Major international armed conflict or war: From #33 to #13. With new armed conflicts in both 2022 and 2023, many fear that those may expand regionally or that new conflicts may arise in 2024.

Natural catastrophe: Up from #26 to #7. Major losses without any major hurricanes from severe convective storms signals that there are many ways to lose.

Largest Drops in Ranking

Inflation: Dropped from #1 to #19. The drop in inflation throughout 2023 in many countries led most survey respondents to downplay this risk.

Employee retention: Fell from #5 to #27. Employee separations are down 28% in the past year in financial services according to the Department of Labor. That improvement drives this change in risk ranking.

Age of employees and distributors: Dropped from #25 to #47. Large numbers of pandemic era retirees have re-entered the workforce easing concerns about the abrupt loss of experienced people.

Ability to hire new employees: Down from #8 to #25. Total open positions have dropped by 28% in the past year in financial services. Positions have either been filled or restructured.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the newsletter editors, or the respective authors’ employers.

Dave Ingram and Max Rudolph are the co-hosts of “Crossing Thin Ice,” a free podcast series about risk management for insurers. The Dangerous Risks Survey and the “Crossing Thin Ice” podcast are sponsored by Actuarial Risk Management. https://crossingthinice.podbean.com/