It’s not just banks that need to be vigilant against cyberattacks and take climate change seriously; insurance companies must also be on guard, notes the Cyprus Central Bank, responsible for overseeing credit institutions rather than the insurance sector.
However, the Central Bank emphasizes the readiness message that should be in place for both new challenges.
Regarding the insurance sector, it highlights that increased insurance requirements may arise due to the higher frequency and severity of extreme climate events.
The climate impacts on the Cyprus region, expected to affect insurance companies, include temperature rises, wildfires, and drought. The general sector, particularly fire and property damage, is anticipated to be more significantly impacted.
In a relevant document discussing the options for reducing the insurance protection gap for climate risks, Cyprus is among the European countries with the lowest insurance coverage for climate-related damages (below 5%), according to the European Insurance and Occupational Pensions Authority (EIOPA) and the European Central Bank (ECB).
The Central Bank states, “The lack of insurance for climate-related destruction can affect the economy and financial stability. If damages are not covered by insurance, the speed at which households and businesses can continue their activities decreases, slowing down economic recovery.”
The second major challenge for the insurance sector is cyber attacks.
While there have been no observed cyber incidents affecting the smooth operation of insurance companies until the Central Bank prepares its report on the stability of the banking sector, it sends a message to insurance businesses to be cautious.
The Central Bank emphasizes, “The advent of new technologies, digital transformation in insurance, digitization of data, infrastructure and information systems upgrade, technological applications, and the use of modern and innovative solutions for providing insurance services (insurtech, insurance technology) may pose challenges but also increased risks from cyber attacks.”
On the other hand, the investment of insurance companies in digital transformation and new technologies is expected to lead to improved service levels for policyholders, increased efficiency, and the quality of provided services, as well as opportunities for further development and evolution through personalized services and innovative insurance products.