5 Emerging Trends Risk Managers and Their Brokers Need to Watch For in 2024
Risk professionals know that staying on top of new exposures is paramount for a company’s success. After all, you want to be the risk manager who suggested buying a cyber insurance policy before an attack occurs — not afterward. The savvy risk manager is always talking with their brokers to ensure they know the latest risks and insurance market shifts.
As 2024 approaches, here are five industry trends that risk managers and their brokers need to be prepared to manage.
1. P&C Market Stabilizing
After almost four years of a hard market marked by rate increases across lines ranging from property to cyber, things are finally stabilizing. Global commercial insurance prices rose just 3% in the third quarter of 2023, according to Marsh’s Global Insurance Market Index. That’s quite a ways down from the fourth quarter of 2020 when the report found rates had increased by 22%!
Some challenging lines are even seeing rate decreases. Cyber, once a tough market, is showing signs of softening. This year, it saw its first rate decrease since 2018. In Q2, rates decreased by 1%, and in Q3, they went down by 2%. The reason? Companies have invested in better cyber risk management, and underwriters are taking note. Security vendors are also helping underwriters accurately assess and price risk.
While rate increases are slowing, some lines remain challenging. Property lines, for instance, are still seeing significant rate increases. Marsh’s report found commercial property rates in the U.S. rose 14%.
2. State of Cyber Risk
Ransomware has returned as a major driver of cyber insurance claims after a brief respite in 2022 when global law enforcement agencies attempted to crack down on attacks. In July, Wired reported that ransomware payouts could reach $898.6 million by the end of 2023 — making it the second largest year for attacks after 2021.
Cybercriminals are also piloting new strategies to catch businesses with robust cybersecurity protections off guard. In September 2023, the FBI put out a notice warning private companies about dual ransomware attacks, where a hacker launches two attacks in quick succession. The attacks could occur anywhere from two to 10 days apart.
Artificial intelligence (AI), too, is shifting cybersecurity risks. Many criminals are harnessing the power of the technology and using it to create deep fake, social engineering attacks, Forbes reported. In a deepfake attack, a hacker may use AI or machine learning to create a convincing, bot-generated phishing email that attempts to trick employees into giving the attacker access to critical company systems. Likely more persuasive than today’s phishing emails, these deepfakes could cause more employees to accidentally expose their companies to cyber threats.
Many of these new attacks are still evolving, and it remains to be seen how businesses will respond to them. In 2024, risk managers will need to continue monitoring cyber risk management and hold regular cybersecurity training for employees to ensure they remain up to speed on all the latest threats.
3. AI is Becoming Commonplace. Know the Risks
Since the launch of ChatGPT in November of last year, business leaders across all industries have speculated about how the tool will transform the world economy. Jobs that once required a human touch might become automated. In other cases, companies may use AI to drive better, swifter company decision-making.
Like any new technology, AI comes with its own risks. Some of them are security-related, like AI-driven data breaches. But others, like errors caused by AI or bias in the algorithm, could end up costing companies money.
If AI makes a mistake that leads to a company getting sued, they could end up paying a lot of money in damages. Risk managers should look into insurance policies that cover some of the exposures that come with using artificial intelligence in insurance and machine learning systems. That way, they can benefit from these technologies while protecting their company’s bottom line.
4. ESG and Recession Related-D&O claims
Economic precarity, high but dwindling inflation, and other indicators have some experts predicting a recession in 2024.
As in any recession, companies should expect D&O claims to increase. After the 2008 financial crisis, D&O claims notifications rose 75%, Marsh reported. The reasons for this correlation are simple: poor financial performance may lead investors to take legal action if they believe the company failed to disclose any pertinent challenges.
In 2024, these familiar challenges may feel extra burdensome because companies are facing new D&O threats. Last year, the SEC published two new rules aimed at preventing companies from making misleading claims about their environmental, social, and governance efforts.
New rules like this one often come with increased regulatory actions, which can, in turn, lead to civil litigation. If a company gets sued for greenwashing, they may be able to file a claim under their D&O policy. Risk managers should take a second look at their policy language to make sure that they’re protected in the event of a claim.
5. Potential for Continued Supply Chain Challenges
Global supply chains never quite bounced back after rampant pandemic disruption in 2020. In 2023, these struggles continued, with businesses struggling to purchase needed parts and products and shipping costs increasing, Reuters reported.
Some experts are predicting some improvement in 2024. An analysis from Bloomberg Law noted that supply chain issues slowly but steadily improved in 2023. It indicates, however, that recovery could be hampered by new vulnerabilities, like cyberattacks or geopolitical conflicts, making it an issue risk managers will need to continue to monitor into the new year.
The Need for A Trusted Risk Advisor Increases
With exposures shifting each year, risk managers need to make sure they have the insurance team and resources to protect their businesses. Trusted brokers and savvy technologies can help them use data to track risk trends, and it can help them determine when they may need to invest in risk management or insurance solutions.
Now more than ever, risk managers must keep track of their insurance policy data, check their coverage language, and ensure they have purchased enough insurance to recover from a claim. We live in a data-driven world. An Excel spreadsheet won’t cut it anymore for understanding and managing insurance risk.
LineSlip organizes and analyzes your insurance policy data so that you can remain on top of today’s risks. Our Total Cost of Risk tool can help risk managers and their brokers envision the cost of a company’s entire insurance portfolio. It can help risk professionals understand where they may need to make investments in order to protect their company from emerging risks.
