\n<\/p>\n
JOHANNESBURG\/LONDON\/MUNICH\/NEW \u00a0<\/p>\n “The financial services sector \u00a0<\/p>\n The AGCS report highlights some of The Allianz Risk Barometer findings are mirrored by an \u00a0<\/b><\/p>\n Covid 19 impact \u00a0<\/p>\n Cyber \u2013 highly exposed despite The Covid-19 environment is also \u00a0<\/p>\n “Third-party service providers can Compliance challenges around Compliance is one of the biggest \u00a0<\/p>\n Applications of new technologies mis-selling concerns \u2013 already one \u00a0<\/b><\/p>\n ESG factors taking center stage <\/b><\/p>\n Financial institutions and capital \u00a0<\/p>\n At the same time, activist \u00a0<\/p>\n Claims trends and its impact on The AGCS report also highlights \u00a0<\/p>\n Cyber incidents already result in \u00a0<\/p>\n Recent loss activity, compounded by \u00a0<\/p>\n “At AGCS, we are committed to engaging
\nYORK\/PARIS\/SAO PAULO\/SINGAPORE \u00a0–\u00a0Media
\nOutReach<\/a>\u00a0– 6 May 2021 –\u00a0Financial
\ninstitutions and their directors have to navigate a rapidly changing world,
\nmarked by new and emerging risks driven by cyber exposures based on the
\nsector’s reliance on technology, a growing burden of compliance, and the
\nturbulence of Covid-19, according to a new report Financial
\nServices Risk Trends: An Insurer’s Perspective<\/b><\/a> from Allianz Global
\nCorporate & Specialty (AGCS)<\/a>. At the same time, the behavior and culture of
\nfinancial institutions is under growing scrutiny from a wide range of
\nstakeholders in areas such as sustainability, employment practices, diversity
\nand inclusion and executive pay. <\/p>\n
\nfaces a period of heightened risks. Covid-19 has caused one of the largest ever
\nshocks to the global economy, triggering unprecedented economic and fiscal
\nstimulus and record levels of government debt,” says Paul Schiavone, Global Industry Solutions Director Financial Services
\nat AGCS<\/b>. “Despite an improved economic outlook, considerable uncertainty
\nremains. The threat of economic and market volatility still lies ahead while
\nthe sector is also increasingly needing to focus on so-called ‘non-financial’
\nrisks such as cyber resilience, management of third parties and supply chains,
\nas well as the impact of climate change and other Environmental Social and
\nGovernance (ESG) trends.”<\/p>\n
\nthe most significant risk trends for banks, asset managers, private equity
\nfunds, insurers and other players in the financial services sector, as ranked
\nin the Allianz
\nRisk Barometer 2021<\/a>, which surveyed over 900 industry respondents: Cyber incidents, <\/i>Pandemic <\/i>outbreak
\n<\/i>and Business interruption are the top three risks, followed by Changes in legislation and regulation \u2013 driven
\nby ESG and climate change concerns in particular. Macroeconomic developments, such as rising credit risk and the
\nongoing low interest rate environment, ranked fifth. <\/p>\n
\nAGCS analysis<\/a> of 7,654 insurance claims for the financial services segment
\nover the past five years, worth approximately \u20ac870mn ($1.05bn). Cyber
\nincidents, including crime, ranks as the top cause of loss by value, with other top loss drivers including
\nnegligence and shareholder derivative actions.<\/p>\n
<\/b>Financial institutions are alive to the potential ramifications of
\ngovernment and central bank responses to the pandemic, such as low interest
\nrates, rising government debt and the winding down of support and grants and
\nloans to businesses. Large corrections or adjustments in markets \u2013 such as in
\nequities, bonds or credit \u2013 could result in potential litigation from investors
\nand shareholders, while an increase in insolvencies could also put some
\ninstitutions’ own balance sheets under additional strain. “Claims may be
\nbrought against directors and officers in the financial services industry where
\nthere has been a perceived failure to foresee, disclose or manage or prepare
\nfor Covid-19 related risks,” says Shanil
\nWilliams, Global Head of Financial Lines at AGCS<\/b>.<\/p>\n
\nhigh level of security spend<\/b><\/p>\n
\nproviding fertile ground for criminals seeking to exploit the crisis as the
\npandemic led to a rapid and largely unplanned increase in homeworking,
\nelectronic trading and a rapid acceleration in digitalization. Despite significant
\ncyber security spend, financial services companies are an attractive target and
\nface a wide range of cyber threats including business email compromise attacks,
\nransomware campaigns, ATM “jackpotting” \u2013 where criminals take control of cash
\nmachines through network servers \u2013 or supply chain attacks. The recent SolarWinds incident<\/a> targeted banks
\nand regulatory agencies, demonstrating the potential vulnerabilities of the
\nsector to outages via their reliance on third-party service providers. Most
\nfinancial institutions are now making use of cloud services-run software which
\ncomes with a growing reliance on a relatively small number of providers. Institutions
\nface sizable business interruption exposures, as well as third party
\nliabilities, when things go wrong. <\/p>\n
\nbe the weak link in the cyber security chain,” says Thomas Kang, Head of Cyber, Tech and Media, North America at AGCS<\/b>.
\n“We recently had a bank client suffer a large data breach after a third-party
\nvendor failed to delete personal information when decommissioning hardware. How
\nfinancial institutions manage risks presented by the cloud will be critical
\ngoing forward. They are effectively offloading a significant portion of cyber
\nsecurity responsibilities to a third-party. However, by partnering with the
\nright cloud service provider, companies can also leverage the cloud as a way to
\nmanage their overall cyber exposure.” <\/p>\n
\ncyber, cryptocurrencies and climate change<\/b><\/p>\n
\nchallenges for the financial services industry, with legislation and regulation
\naround cyber, new technologies and climate change and ESG factors constantly
\nevolving and increasing. Indeed, the report notes that there has been a seismic
\nshift in the regulatory view of privacy and cyber security in recent years with
\nfirms facing a growing bank of requirements. The consequences of data breaches
\nare far-reaching, with more aggressive enforcement, higher fines and regulatory
\ncosts, and growing third party liability, followed by litigation. Regulators
\nare increasingly focusing on business continuity, operational resilience and
\nthe management of third party risk following a number of major outages at banks
\nand payment processing companies. Companies need to operationalize their
\nresponse to regulation and privacy rights, not just look at cyber security.<\/p>\n
\nsuch as Artificial Intelligence (AI), biometrics and virtual currencies will
\nlikely raise new risks and liabilities in future, in large part from compliance
\nand regulation as well. With AI, there has already been regulatory investigations<\/a>
\nin the US related to the use of unconscious bias in algorithms for credit
\nscoring. There have also been a number of lawsuits<\/a>
\nrelated to the collection and use of biometric data. The growing acceptance of
\ndigital or cryptocurrencies as an asset class will ultimately present
\noperational and regulatory risks for financial institutions with uncertainty
\naround potential asset bubbles and concerns about money laundering, ransomware
\nattacks, the prospect of third-party liabilities and even ESG issues as
\n“mining” or creating cryptocurrencies uses large amounts of energy. Finally,
\nthe growth in stock market investment, guided by social media raises <\/p>\n
\nof the top causes of insurance claims.<\/p>\n
\nmarkets are seen as an important facilitator of the change needed to tackle
\nclimate change and encourage sustainability. Again, regulation is setting the
\npace. There have been over 170 ESG regulatory measures introduced globally
\nsince 2018, with Europe leading the way. The surge in regulation, in
\ncombination with inconsistent approaches across jurisdictions and a lack of
\ndata availability, represents significant operational and compliance challenges
\nfor financial service providers. “Financial services may be ahead of many other
\nsectors when it comes to addressing ESG topics, but it will still be an
\nimportant factor shaping risk for years to come,” says David Van den Berghe, Global Head of Financial Institutions at AGCS<\/b>.
\n“Social and environmental trends are increasingly sources of regulatory change
\nand liability, while increased disclosure and reporting will make it much
\neasier to hold companies and their boards to account.”<\/p>\n
\nshareholders or stakeholders increasingly focus on ESG
\ntopics<\/a>. Climate change litigation, in particular, is beginning to include
\nfinancial institutions. Cases have previously tended to focus on the nature of
\ninvestments, although there has been a growing use of litigation seeking to drive
\nbehavioral shifts and force disclosure debate<\/a>. Besides climate change, broader social responsibilities are coming
\nunder scrutiny, with board remuneration and diversity<\/a>
\nbeing particular hot topics, and regulatory issues. “Companies that commit to
\naddressing climate change and diversity and inclusion will need to follow
\nthrough. For those that do not, it will come back to haunt them,” says Van den
\nBerghe. <\/p>\n
\nthe insurance market <\/b><\/p>\n
\nsome of the major causes of claims that insurers see from financial
\ninstitutions. The fact that compliance risk is growing is concerning, as
\ncompliance issues are already one of the biggest drivers of claims. “Keeping
\nabreast of compliance in a rapidly-changing world is a tough task for companies
\nand their directors and officers,” says Williams. “Their compliance burden is
\nenormous, and is now accompanied by growing regulatory activism, legal action
\nand litigation funding.”<\/p>\n
\nthe most expensive claims and insurers are seeing a rising number of
\ntechnology-related losses including claims made against directors following
\nmajor privacy breaches. Other examples include sizable claims related to
\nfraudulent payment instructions and “fake president” scams. Such payments can
\nbe in the millions of dollars. AGCS has also handled a number of liability
\nclaims arising from technical problems with exchanges and electronic processing
\nsystems where systems have gone down and clients have not been able to execute
\ntrades, and have made claims against policyholders for loss of opportunity.
\nThere have also been claims where a system failure has caused damages to a
\nthird party; one financial institution suffered a significant loss after a
\ntrading system crashed causing processing failures for customers.<\/p>\n
\nCovid-19 uncertainty, have contributed to a recasting of the insurance market
\nfor financial institutions, characterized by adjusted pricing and enhanced
\nfocus on risk selection by insurers, but also a growing interest for alternative
\nrisk transfer solutions, in addition to traditional insurance. Insurance<\/a>
\nis increasingly an important part of the capital stack of financial
\ninstitutions and a growing number are partnering with insurers to manage risk
\nand regulatory capital requirements or utilizing captive insurers to compensate
\nfor changes in the insurance markets or to finance more difficult-to-place
\nrisks. <\/p>\n
\nwith financial institutions to help them mitigate their exposures and develop
\nadequate risk transfer solutions for a sector that is embarking on a major transformation, driven by fast-paced
\ntechnology adoption and growing ESG issues, while having to master the
\nimpacts of the Covid-19 pandemic,” says Schiavone. <\/p>\n