Risk Trends for 2023

Some economists are forecasting a deepening recession in 2023. While there are varying measurements to determine what qualifies as a recession, the consensus is that rising interest rates and high inflation will continue to put the squeeze on Americans’ wallets in the new year. As a byproduct of these economic conditions, there is a good chance that insurance companies will see an uptick in claims related to inflation and the heightened cost of living. In risk control, we are planning to focus our efforts on risks related to the financial impact of a challenging economic climate.

In the coming year, I expect we will see an increase in fraud and opportunistic crimes as people become more financially desperate and criminals prey on that desperation. People faced with bleak financial outlooks are not only more likely to turn to committing crimes for financial gain, but also are more likely to fall victim to scams that promise fast, easy cash.

Cybercrime: Something Old, Something New

Cybercriminals are mixing new tactics with the tried-and-true to reel in victims online, including scams that involve cryptocurrency and social media.

Today’s social media scams take many forms, but typically involve being contacted by someone behind a fake account. We try to educate our customers to be suspicious of unexpected communication and to make sure they know who they are really interacting with online. Keeping accounts as private as possible and not oversharing on social media are strategies that go a long way toward staying safe online, since the more a criminal knows about you, the easier target you become. We also advise using strong passwords, which are vital to protecting computers and networks from data breaches. Using a combination of upper- and lower-case letters, numbers, symbols, or special characters helps create strong passwords. People get into trouble when they share passwords or pass phrases and use the same password or pass phrase on multiple accounts.

Cybercriminals are constantly coming up with new ways to steal assets and information. They are always getting better at tricking people into disclosing sensitive information. In any business, human beings are the greatest vulnerability. Training employees to spot potential scams is the best line of defense against data breaches. Some of the biggest data breaches have seen worldwide were aided by a successful phishing attempt. As long as phishing and its text counterpart, smishing, are paying off for criminals, those threats will be with us.

Not surprisingly, with the rise in popularity of cryptocurrency has come an increase in scams that involve the digital currency. According to a Federal Trade Commission report, people have reported losing more than $1 billion in crypto since the start of 2021. There is a strong connection between social media and crypto scams, as more than half of victims said the scam started with something they responded to on social media. People chasing the easy dollar are getting caught up in fraudulent blockchain pyramid or Ponzi schemes, proving that even in the digital age, this old adage still applies: If it seems too good to be true, it probably is. Once a scammer gets his hands on your crypto, you are out of luck since crypto is not insured by the Federal Deposit Insurance Corporation (FDIC) the way traditional currency is. Only scammers will promise big returns on crypto investments. Cryptocurrency may be relatively new, but the tactics scammers use are tried and true.

Property Crimes on the Rise

In the physical world, looking at 2022 crime trends from the Council on Criminal Justice, homicides and gun assaults have gone down, but property crimes have increased. Aggravated assaults and robberies declined in the first half of 2022 compared to the first half of 2021. Residential burglaries (+6%), nonresidential burglaries (+8%), larcenies (+20%), and motor vehicle thefts (+15%) all increased in the first half of 2022 compared to the first six months of 2021. In our claims data, we are continuing to see a rise in opportunistic burglaries from buildings and cars. I expect this trend to maintain or accelerate in the projected economic climate of 2023.

Property crime prevention includes making sure the areas around buildings are well-lit and do not provide places for intruders to hide. Keeping ladders stored away and trimming away tree branches that overhang buildings make it harder for criminals to access roofs or upper stories. Property owners often forget about the basics of window and door security to keep intruders out. Our customers often have multiple employees and volunteers with keys to their buildings. We advise them to always know who has keys, and when a keyholder leaves the organization, to get the keys back from them and change the locks.

Thefts of catalytic converters from vehicles rose sharply with the pandemic. We have seen those thefts stabilize in recent months, but as long as the materials in catalytic converters are valuable, people will continue to steal them. Safeguards to deter catalytic converter theft include keeping vehicles locked and parked in a secured, well-lit area when not in use; parking close to building entrances; considering the use of security surveillance cameras in areas where vehicles are parked; adjusting or calibrating the sensitivity of your vehicle’s alarm so that vibration will activate the alarm; and having the vehicle identification number (VIN) engraved on the catalytic converter. Catalytic converter-specific aftermarket devices such as straps, clamps, cages, and alarms can also help deter theft.

With copper prices still high, thieves are targeting the metal in every form and selling it to scrap yards for cash. The most popular items being targeted for their copper are outdoor air conditioning units. Buildings left unoccupied at night, as well as those located in rural areas, are considered easy targets. Also, these types of facilities tend to have large or multiple air conditioning units with a greater amount of copper than a single residential unit. Other sought-after items for copper scrap include wires, plumbing pipes, and rain gutters. The high prices have made thieves bolder and more inventive than ever before. One scheme we have learned of involves thieves posing as construction or repair workers to gain access to copper components inside buildings.

Supply Chain Disruptions

Another issue to watch for is the ongoing impact of supply chain disruptions. This brings up the importance of risk management and business continuity planning to ensure supply chain disruptions do not negatively impact businesses and organizations. Speaking of the supply chain, vendors and contractors often have access to your customers’ data and systems. Hopefully, your customers are vetting these third parties before handing them the keys to their kingdoms, because any security lapses by these contractors and vendors could spell trouble for the customer. It is not just about whether a third party is trustworthy with sensitive information, it is how diligent they are with their own security practices.

Having a comprehensive business continuity plan is also essential to weather any storm. If we learned anything from the COVID-19 pandemic, it is that every organization should be prepared for disruptions to their operations. In fact, nearly one in five businesses experience some type of disruption every year. There are numerous causes, including natural disasters, accidents, sabotage, power outages, environmental disasters, and cyberattacks. Some disruptions can last only a few hours, while others may take months or years for the organization to bounce back.

Research suggests 80% of businesses without a business continuity plan that experience a major incident never reopen or close within 18 months. However, with some planning and practice, this risk can be greatly reduced.

Economic projections paint a not-so-pretty picture for 2023. High inflation is expected to continue, along with rising interest rates and the lingering disruptions of the COVID-19 pandemic. The insurance industry can help protect customers and avoid some claims by focusing risk control efforts on the threats associated with this economic climate.