Risk Trends in 2024 and Beyond: Insurance

Read the fine print: Do you really know the current costs and benefits of insurance?

An unprecedented number of hurricanes, floods, wildfires, droughts, and numerous cyber and privacy breaches have led to a record number of insurance claims throughout 2022 and 2023. This has led to an increase in the cost of insurance, uninsurable assets, and the complexity of terms and conditions related to acceptable claims.

As a result, organizations are finding that insurance is becoming far less affordable and far more difficult to access. And it’s getting harder to make a claim, even for those that are insured.

The current challenges are only the tip of the spear. 2023 is on pace to become the hottest year on record, and it’s likely that climate-related events will only become more severe and damaging in the coming decade. There’s also reason to fear the looming impact of AI on the cyber risk landscape, among other risk areas.

Organizations can no longer rely exclusively on insurance to mitigate a large percentage of risk. Those that do will find themselves increasingly at the behest of insurers to put relevant practices, policies, and governance in place.

While this may lead to improved risk management, it’s worth reiterating that insurers have a clear incentive to prioritize their own interests no matter the cost to the insured.

Moving forward, boards and executives must seek to gain a better understanding of their overall risk landscape — including the potential for business interruptions due to natural disasters, greenwashing, cyber attacks, pandemics, supply chain interruptions, etc. This will require difficult decisions around which risks the company should absorb and/or mitigate independently and which to outsource to insurance.

It may also be a good time to contact an independent insurance advisor who can help to quantify coverage amounts and rates and determine whether the coverages are worth the investment.

Key questions to ask

• How does the organization plan to navigate significant increases in insurance rates, especially those related to cyber insurance?
• Has your overall insurance coverage of risk exposure decreased over the last few years? How does this change the organization’s overall risk management strategy?
• How could utilizing an insurance expert assist with optimizing insurance claims? Did you know many policies cover the cost of an insurance expert to support your claim?
• Have you ever audited the value optimization of your insurance coverage?

Red Flags

• Last-minute insurance renewal
• Claims not properly paid
• Insufficient values
• Board and senior management not aware of renewals or amounts
• Material rate increases

Internal Audit Project Opportunities

Underwriting Audit

This audit reviews the underwriting process to ensure that insurance policies are issued in accordance with established guidelines and risks are properly assessed and priced.

Claims Management Audit

This audit assesses the claims handling process, ensuring that claims are processed efficiently, accurately, and in compliance with the insurance policy terms.

Compliance Audit

This audit examines the insurance company's adherence to regulatory requirements, industry standards, and internal policies.

Risk Management Audit

This audit evaluates the effectiveness of the insurance company's risk management practices, including risk identification, assessment, and mitigation strategies.

Reinsurance Audit

For insurance companies that use reinsurance, this audit reviews reinsurance arrangements and ensures they align with the company's risk management objectives.

Premium Audit

This audit reviews the premium calculation and collection process to ensure accuracy and compliance with policy terms.

Policyholder Services Audit

This audit assesses customer service processes, policyholder communications, and complaint handling to ensure high levels of customer satisfaction.

Financial Controls Audit

This audit examines the financial controls, accounting practices, and financial reporting of the insurance company to ensure the accuracy and integrity of financial information.

Information Security Audit

This audit assesses the company's information security measures, including data protection, access controls, and cybersecurity practices.

Product Development Audit

This audit reviews the process of designing and introducing new insurance products to ensure they meet regulatory requirements and align with the company's risk appetite.

Sales and Marketing Practices Audit

This audit assesses the sales and marketing practices of the insurance company to ensure they are fair, transparent, and compliant with relevant regulations.

Claims Reserving Audit

This audit evaluates the adequacy of claims reserves set aside by the insurance company to cover future claim payments.

Actuarial Audit

For companies using actuaries to assess risks and set insurance premiums, this audit reviews actuarial practices and compliance with professional standards.

IT Systems Audit

This audit assesses the insurance company's information technology systems and infrastructure to ensure they support the organization's operations securely and efficiently.

Agency and Broker Management Audit

This audit reviews the relationship and performance of insurance agents and brokers to ensure proper oversight and compliance.