COVID-19 may drive market corrections and insolvencies that could impact financial institutions
’ balance sheets, increase exposures for directors and result in litigation.
However, financial institutions are also facing many other ris
ks in the areas of cyber, climate, compliance and corporate culture, ac
cording to a report, Financial Services Risk Trends: An Insurer’s Perspective, from Allianz Global Corporate & Specialty (AGCS).
An AGCS analysis of €870 million ($1 billion) of insurance industry claims in the financial sector shows cyber inci
dents, including crime, is the top cause of loss. Insurers see a rising number of losses from outages or privacy breaches with third-party service providers a potential weak link.
Compliance issues are already one of the biggest drivers of claims and the burden is growing – particularly around
economic, social and governance (ESG) factors and climate change, according to the report.
At the same time, the behavior and culture of financial institutions is under growing scrutiny from a wide r
ange of stakeholders in areas such as sustainability, employment practices, diversity and inclusion and executive pay.
The AGCS report highlights some of the most significant risk trends for banks, asset managers, private equity funds, insurers and other players in the financial services sector, as ranked in the Allianz Risk Bar
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ometer 2021, which surveyed over 900 industry respondents. Cyber incidents, pandemic outbreak and business inter
ruption are the top three risks, followed by changes in legislation and regulation — driven by ESG and climate change concerns in particular.
Macroeconomic developments, such as rising credit risk and the ongoing low interest rate environment, ranked fifth.
The Allianz Risk Barometer findings are mirrored by the AGCS analysis of 7,654 insurance claims for the financial ser
vices segment over the past five years, worth approximately €870 million ($1.05 billion). Cyber incidents, including cr
ime, ranks as the top cause of loss by value, with other top loss drivers including negligence and shareholder derivative actions.
“The financial services sector faces a period of heightened ri
sks. Covid-19 has caused one of the largest ever shocks to the global economy, triggering unprecedented economic and fiscal stimulus and record
levels of government debt,” says Paul Schiavone, director of Global Industry Solutions in Financial Services at AGCS. “Despite an improved economic outlook, considerable uncertainty remains.”
While the threat of “economic and market volatility” still lies ahead, the sector is also having to focus on so-cal
led “non-financial” risks such as cyber resilience, management of third parties and supply chains, as well as the impact of climate change and other Environmental Social and Governance (ESG) trends, according to Schiavone.