From floods to phishing: Strategies for tackling climate risks and cyber threats

From floods to phishing: Strategies for tackling climate risks and cyber threats | Insurance Business Canada

Cyber

From floods to phishing: Strategies for tackling climate risks and cyber threats

The increasing frequency and severity of climate-related risks is global

In a world where climate change and data security are top concerns, brokers are struggling to retain top talent while managing rising client expectations. For Sanjay Makkar (pictured), the leader behind InsureU, these challenges demand adaptability, innovation, and a proactive approach to ensure brokers remain competitive in the future.

The increasing frequency and severity of climate-related risks is globally noticeable – as is the insurance industry’s struggle to adapt.

Climate-related risks

“It’s evolved and become more severe in the last decade, with a lot of shifting weathers,” Makkar told IB. These events, compounded by aging infrastructure, especially in provinces like Ontario, are driving up claims. Makkar points out that insured losses have averaged about CA$2 billion annually over the past decade, with 2021 being a record year. 

Makkar explained that while insurance companies have evolved to offer coverage for previously uncovered risks like groundwater and overtime water damage, these evolving patterns remain difficult to predict and price.

“We see, one year, great weather… then come to the next year, where it becomes very challenging,” he said, emphasizing the cyclical unpredictability. This unpredictability impacts both the cost of claims and premiums, which are inevitably passed on to consumers. 

Makkar stressed that many clients are still “focused about price,” seeking savings, often at the expense of adequate coverage. InsureU is working to communicate the importance of climate-specific policies and is exploring partnerships with insurers using scientific data for individualized risk assessments and more accurate pricing models.  

Cyber insurance growth

Driven by increasing data breaches and ransomware attacks, the global cyber market is valued close to US$8 billion “and this is projected to grow to almost $33 billion by 2028.” Makkar explained. With such significant growth, InsureU Brokers has adapted its approach, placing a strong focus on client education and proactive risk assessment.  

One key strategy is sharing real-world examples of cyber incidents experienced by its clients. This serves as a wake-up call for businesses that might underestimate their own susceptibility to cyber threats. In addition, InsureU has begun training its employees in phishing detection and other security tools to better equip them to assist clients.

“We are trying to also provide tools which customers can use to assess how focused they are in protecting themselves,” Makkar said. 

Technology and AI in insurance

As the market for cyber insurance expands, more insurers are stepping up with coverage options. Makkar points out that even standard insurance companies are now including cyber insurance as part of small business package policies at a nominal price. However, the complexity of cyber risks requires more than basic coverage.

“We are also partnering with companies and trying to develop key partnerships… to give enhanced coverage options to companies more vulnerable to these kinds of risks,” Makkar explained.  

He recognizes that AI and big data are rapidly transforming the insurance industry, particularly in areas like risk assessment, claims processing, and customer experience.

“We are using AI to increase customer experience by analyzing behaviours, underwriting answers, and defining key business segments where we are successful,” he said.

One of the key benefits of AI for InsureU is its affordability, which has levelled the playing field for smaller brokerages. Makkar points out that just five or 10 years ago, such technology was largely out of reach for small- to mid-sized firms due to high costs. But now, the pandemic has accelerated the adoption of these tools, making them accessible and essential to maintaining a competitive edge.

“The good news is that, due to high demand, the affordability of technology is available for small to mid-sized brokerages as well,” Makkar said, a significant change from earlier years when only large players could afford to invest in such tools. 

M&A activity and private equity interest in brokerages

Makkar sees both opportunities and challenges in the surge of private equity interest in Canadian P&C brokerages.

“There’s more and more of them [private equity firms] coming in and participating in M&A activity,” Makkar said, emphasizing how this influx has increased the valuations and multiples being offered, which are now higher than the traditional norms of the industry. He attributes this heightened interest to the residual cash flow and growth potential that consolidations offer, which makes brokerages an attractive and stable investment for private equity firms. 

However, Makkar is also cautious about the impact this trend has on smaller brokerages.

 “It is impacting the growth of smaller brokerages,” he pointed out, stressing that the wave of consolidation could limit consumer choices, particularly for those who value relationship-based, community-centered services. Smaller firms, often built on personalized service, may struggle to compete with the scale and resources that come with private equity-backed consolidations. 

On the other hand, Makkar sees strategic potential in M&A activities for InsureU Brokers, particularly when it comes to scaling operations, accessing new capabilities, and leveraging technology.

“Consolidation may be a good strategic move… to gain scale, operational efficiencies, and access to a broader range of capabilities,” he explained. “[However], for business owners, it’s important to maintain the balance between growth and retaining core values.”

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