Last week diversified insurance provider Insurance House was forced to shut down its online systems for a lengthy period while it dealt with a highly sophisticated malware attack. While no client data was compromised, the company says the episode is a reminder how challenging the cyber threat can be.

The increasingly brazen nature of such attacks is among the issues that most worry insurers, a PwC survey has found.

Cyber risk ranks second on the threat list behind technology, which takes top spot for the first time since the biennial Banana Skins report was launched in 2007.

Change management, linked partly to concern over the industry’s preparedness for the digital age, places third on the top-21 list.

According to the report, all aspects of technology have produced an edgy industry.

While the industry worldwide has invested heavily to improve its digital infrastructure and know-how, there remains widespread concern its efforts may fall short.

“The urgent need for business and technology modernisation poses the greatest threat to the global insurance industry over the next 2-3 years,” the report says.

“It is also a pervasive theme throughout this report, underpinning other high-ranking risks including cyber risk, change management and competition [seventh on the list].

“At the heart of responses was the view that many insurers are encumbered with legacy business models and IT infrastructure that are poorly equipped to handle the changing demands of the industry.

“But modernisation requires capital and skills that are in short supply, and an ability to forecast future needs that are far from certain.”

PwC and its partner on the survey, the Centre for the Study of Financial Innovation (CSFI), say they have never encountered such a negative tone.

CSFI director Andrew Hilton says the downbeat mood, with the emphasis on technology and cyber, “ought to be a wake-up call”.

“It is well known that many insurers are lumbered with legacy systems that need updating and that integrating them is time-consuming, fiendishly complicated and, inevitably, very expensive.

“Equally, we are all aware of the risks around cyber – from simple hacking, from ransomware, from Trojans, even from malevolent state actors. We are less aware of ‘silent’ cyber exposure, but it is a real risk that is starting to take up much more C-suite time.”

Compounding the industry’s concern are a number of factors largely beyond its control. Climate change is one, debuting on the list in sixth position.

Heavy economic losses from huge hurricanes, wildfires, floods and other extreme weather events that scientists believe are linked to global warming have prompted the industry to reassess commercial threats arising from man-made carbon emissions.

Until now, the industry has viewed climate change as a long-term risk. No longer.

“The frequency and severity of events has more than doubled in the past 10 years and is expected to continue to increase as global temperatures continue to rise,” the President of a Canadian general insurer told the survey.

“New flood products have not been fully tested for price adequacy and wildfire risk is growing as well without models to assist in measuring exposure.”

Many industry respondents believe certain risks will be very difficult or impossible to underwrite as climate change escalates.

“In the short term, this looks like greater use of risk-based pricing,” the chief actuary of a  general insurer says. “However, as the response evolves there will be more restrictions and potential withdrawal of cover.”

According to the CEO of a New Zealand insurer, a world in which temperatures rise three degrees “would probably not be insurable”.

The US-China trade spat and growing protectionist sentiment is another threat over which insurers have no control. Categorised under political risk, it ranks 11th in the survey.

An economic war between the US and its major trading partners will be damaging for financial stability, insurers warn.

The top-21 risks based on responses from 927 participants in 53 markets, including Australia, are:

1. Technology
2. Cyber
3. Change management
4. Regulation
5. Investment performance
6. Climate change
7. Competition
8. Human talent
9. Macro-economy
10. Interest rates
11. Political risk
12. Cost reduction
13. Reputation
14. Guaranteed products
15. Business practices
16. Quality of management
17. Credit risk
18. Social change
19. Corporate governance
20. Capital availability
21. Brexit.