Top five claim trends for banks and wealth managers and how they might impact firms in 2023

The fast moving events of SVB, Signature Bank and now Credit Suisse throw into sharp focus the importance of risk management at the top of an organisation and the need to stress test for what unfavourable things could happen including interest rate changes, liquidity, credit risk, operational risk and more. 

Whilst claims have not directly influenced the above mentioned events, they do throw into focus key risk areas forcing extra pressure on business resilience. Here, we look at claims trends from the last year and explore how they might impact firms for the rest of 2023.

Environmental, social and governance

As regulators gear up for more stringent policing of environmental claims, greenwashing remains a mis-selling and investigations risk for financial institutions. The BNY Mellon fine^[1] for ESG fund misstatements and the raid on Deutsche Bank^[2] over alleged exaggeration of the sustainability credentials of certain investments make it clear the risk is real.

Sustainability is undoubtedly the right way forward for 2023. But in adapting to the necessary ESG remit, regulated entities will face new and increased exposures – and this will have implications for insurance.

The FCA set out its ESG priorities and strategy for positive change in 2021^[3], and has taken a more proactive approach since with its climate-related disclosure requirements, bringing life insurers, asset managers, pension providers and standard listed companies into its scope.

It produced its first climate-related financial disclosure report in July 2022 and acknowledged the banking sector has seen a 'step change' over the last year in terms of net zero commitments and related targets and strategies.^[4]

This has included the formation of the Net Zero Banking Alliance (NZBA) as well as other initiatives such as Bankers for Net Zero, and the Partnership for Capital Transition Assessment.

Large Employment Practices Liability claims

Expanding ESG beyond the ‘E’, and perhaps related to the #metoo and #BLM movements, 2022 was certainly the year of the large EPL claim in the UK. Whilst large compensation payments are common in the US, last year was the first year in which we have seen a number of UK financial institutions making payments in excess of £1m to individuals alleging discrimination and other employment-related wrongs. Regulators also continued to crack down on non-financial misconduct.

Cyber

Received wisdom is that the war in Ukraine has led to a reduction in ransomware attacks outside of the impacted region as bad actors focus on the conflict. Nonetheless, cyber hacks remain a steady source of claims and there is no sign of a significant reduction in premium costs for the product, following the recent large increases from historic lows.

According to the Bank of England’s 2022 Systematic Risk Survey, 72% of executives in the financial sector believe there is a big chance of a high-impact cyber attack in the sector in 2-2023 – and 74% see cyber attacks as the biggest risk in their industry.^[5]

Last year Flagstar Bank in the United States suffered a data breach which impacted more than 1.5m customers.^[6]

Already in 2023, Denmark’s central bank and seven private banks – including Jyske Bank and Sydbank – have been hit by distributed denial of services (DDoS) attacks.^[7]

The UK is by no means exempt. A quarter of cyber security incidents reported to the Financial Conduct authority in the first six months of 2022 involved DDoS.^[8]