Australian insurers are preparing for riskier investment portfolios, with private equity and venture capital driving much of the shift, according to new research from Clearwater Analytics (CWAN).
The study found that 76% expect their investment risk profiles to rise over the next two years. That builds on an earlier trend, with 80% saying their firms’ risk profiles had already increased over the past two years.
Private markets appear to be a major factor behind that change. Seventy per cent (70%) of Australian insurers said they expect risk and return levels in private equity and venture capital to increase significantly over the next 12 months, more than in any other asset class.
The research suggests firms are responding by improving the way they monitor and manage risk. Automation was identified as the main method insurers are relying on, ahead of options such as stricter regulation or tighter capital controls. Executives also said regulatory requirements are a key reason for higher technology spending, especially in asset liability management, stress testing, solvency reporting, and risk disclosures.
“Australian insurers are embracing risk and plan to push their investment risk profiles higher over the next two years, building on the increases already recorded over the past two years. This shift is deliberate and strategic - driven by the pursuit of better returns in private markets and supported by a new generation of technology that gives insurers the visibility and control to manage that risk with confidence,” said Shane Akeroyd, chief strategy officer and president of Asia Pacific at CWAN.
Many firms also said they now have better visibility over portfolio risk. In Australia, 84% said risk visibility at their organisation had improved over the past two years, while 92% rated their current visibility as good or excellent. Respondents linked that improvement to greater use of platforms that bring together data from different sources and allow firms to update models and analytics as market conditions change.
In Hong Kong, 54% of respondents said risk visibility had improved over the same period, while 98% rated their current visibility as good or excellent. On investment risk profiles, 52% of insurers in Hong Kong and 84% in Singapore said risk had increased over the past two years.
The study also looked at where insurers plan to focus technology spending over the next 12 months. Improving customer experience was the top priority, chosen by 54% of respondents. That was followed by greater use of data analytics at 52%. Equal shares of respondents, at 48%, selected AI and machine learning integration and improvements to portfolio systems, while 46% pointed to automation of reporting.
The findings also show that insurers see gaps in where time and resources are being spent. Around 84% said more effort should go to cross-asset risk aggregation, while 70% said the same about regulatory and compliance demands.
“The firms that address these gaps now - in cross-asset risk aggregation and regulatory compliance - will be significantly better positioned as private market portfolios grow more complex and regulatory demands intensify across the region,” Akeroyd said.
