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07

Regulation reform again tops poll of insurers' concerns

Open-access content Thursday 18th July 2013 — updated 5.13pm, Wednesday 29th April 2020

Changes to the regulation of the insurance industry, including the introduction of the new Solvency II rules in Europe, represent the biggest current risk to firms, a survey by accountants PricewaterhouseCoopers has revealed.

The impact of regulatory reform was the top factor in PwC's Insurance banana skins survey, conducted with the Centre for the Study of Financial Innovation think-tank.

The 600 insurance practitioners and industry observers polled warned that proposed changes could 'swamp' the industry with costs and compliance problems. Fears about regulation also topped the list the last time the poll was conducted, in 2011.

The second biggest issue among those questioned was the impact of investment performance in the sector, followed by the wider impact of the economic environment. The risk of poor individual business practices at firms, such as mis-selling, has risen up the list from 18th place to 4th in this year's poll, with the risk of natural catastrophes completing the top five concerns.

The fact that this is the second successive survey which has identified regulation as the top risk concern for insurers underlines 'the continuing uncertainty surrounding major regulatory initiatives', PwC stated.

For example, the European Union's Solvency II directive is now in its seventh year of planning. Solvency II was also the focus of strongest individual concern in the report, particularly as many non-EU countries are awaiting the outcome before they finalise plans of their own.

David Law, global insurance leader at PwC, said: 'Once again regulation is the number one risk. The fragile economic environment and subdued investment performance also remain high on the list of concerns. Managing these challenges is clearly a critical boardroom priority.

'But there's a risk that by solely focusing on these recurring issues insurers could miss other threats and opportunities coming up over the horizon. The industry faces transformational shifts in technology and customer expectations, which are reshaping how insurance is sold, how risk is priced and even what we mean by insurance.'

Some of the concerns vary slightly between the life and general insurance sectors, with life more concerned about the impact of low interest rates on investment performance. General insurers are more worried about how to maintain competitive prices in the industry when there is excess capacity.

A number of risks have fallen in urgency, across both sectors, compared to 2011, most notably concern about the availability of capital, which has fallen from second place in 2011 to 16th in the current list. Another receding risk is finding and retaining high-quality staff, as job cuts across the financial sector have made it easier to recruit and keep good talent, the report stated. However, human resources and recruitment remains in the top 20 due to the lack of qualified talent in some emerging markets.

The top 20 risks, according to the poll, are (2011 rating in brackets):

 

1            Regulation (1)

2            Investment performance (4)

3            Macro-economic environment (3)

4            Business practices (18)

5            Natural catastrophes (5)

6            Guaranteed products (-)

7            Quality of risk management (15)

8            Quality of management (14)

9            Long tail liabilities (7)

10            Political interference (11)

11            Distribution channels (9)

12            Actuarial assumptions (12)

13            Innovation (-)

14            Reputation (16)

15            Change management (-)

16            Capital availability (2)

17            Corporate governance (8)

18            Climate change (20)

19            Human resources (6)

20            Product development (24)

This article appeared in our July 2013 issue of The Actuary .
Click here to view this issue

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