Insurance Companies Say 'Too Much Regulation' is a Global Concern, CSFI Banana Skins Poll with PricewaterhouseCoopers Finds

May 29, 2007, 01:00 ET from PricewaterhouseCoopers

    NEW YORK and LONDON, May 29 /PRNewswire/ -- Regulatory overkill is the
 greatest risk facing the global insurance industry, according to the CSFI's
 latest Banana Skins survey, in association with PricewaterhouseCoopers LLP.
     PwC has provided longstanding support for the CSFI's Banana Skins
 surveys in the banking sector and thereby recognized that a similar study
 of risks in the insurance industry was a natural extension of the series.
     Top Ten Insurance Banana Skins 2007
     1.  Too much regulation
     2.  Natural catastrophes
     3.  Management quality
     4.  Climate change
     5.  Managing the cycle
     6.  Distribution channels
     7.  Long tail liabilities
     8.  Actuarial assumptions
     9.  Longevity assumptions
    10.  New types of competitors
     More than 100 respondents to the survey say that excessive regulation
 is endangering the industry by loading companies with costs, distracting
 management and creating barriers to competition and innovation. This
 finding is linked to concern about growing political interference,
 particularly in markets where governments regulate insurance products and
     Over-regulation is widespread. With responses from 21 countries, the
 survey shows it to be a major issue in North America, Europe, South Africa
 and the Asia Pacific region. By sector, concern is strongest among life
 insurance companies, followed by the property & casualty sector. The survey
 quotes the chief executive of a major UK life insurer as saying:
 "Regulation is becoming ever more intrusive, time-consuming and
 box-ticking. This is despite the rhetoric about principles-based
 regulation." More than 80 per cent of the insurance industry respondents
 were senior executives or directors.
     The survey is the first in the CSFI's long-running Banana Skins risk
 series to focus on the insurance sector. The result matches the finding of
 the CSFI's last survey of the banking industry (2006), where
 over-regulation emerged as the top risk for the second year running.
     "Over-regulation is clearly a major issue for a large part of the
 finance sector, not just banking. It also appears to be a global
 phenomenon," said David Lascelles, the survey's editor.
     "The focus on regulation will only increase over the next few years, as
 insurers face a number of new demands, not least the coming overhaul of
 financial reporting and Solvency II, the planned regulatory framework for
 European insurers which aims to map the regulatory capital requirements of
 each company against its individual risk profile," added Mike McColgan,
 Partner and Metro Insurance Leader, PricewaterhouseCoopers. "A key
 challenge is to develop effective risk management systems that can provide
 both compliance and also improved business execution."
     Other high level risks identified by the survey include natural
 catastrophes and climate change, where insurance losses for the property
 and casualty sector are rising fast, particularly in heavily populated
 areas. The main risks facing the life insurance industry include growing
 human longevity and the soundness of assumptions going into the pricing of
 life policies.
     The survey was conducted at a time when the traditional cycle in the
 property and casualty market is turning down. Respondents say that insurers
 are striving to maintain revenues by taking on extra risk, cutting prices
 and loosening the wording of insurance contracts. This raises concerns
 about the profitability of the industry, and the risk that insurers will be
 exposed to "long tails" - insurance risks that could take years to
     The quality of management in the insurance industry is also a major
 source of concern. Responses to the survey show widespread doubts about the
 industry's ability to meet growing challenges from regulation, new
 competitors, technological change and product innovation. The industry is
 also seen to be failing to attract new blood because of an image problem.
 Like regulation, the management issue is geographically widespread.
     One of the operational challenges facing the industry is the
 modernization of back office systems and technology. Too much of the
 industry is technologically obsolete, even paper-based, which ties its
 hands when competing with new entrants into the business: better equipped
 banks and Internet-based suppliers.
     The survey also shows which risks are seen to be receding. Notable is
 asbestos, once the scourge of the industry, now at the bottom of the list
 with insurers feeling it is manageable. The problems of under-regulation
 are also low down the list, though it is felt that several emerging markets
 need better controls.
     Although the survey exposes some potentially worrying risks, it also
 brings better news about the industry's preparedness. Only three percent of
 respondents think insurers are "poorly" prepared to meet the risks that lie
 ahead. Just over 20 per cent answer "well" and the rest give a mixed
     The Insurance Banana Skins survey was conducted in February and March
 2007 and is based on 139 responses from 21 countries.
     The breakdown, by type of respondent, is as follows:
     Brokers                   6%
     Life insurance           34%
     Property & casualty      35%
     Reinsurance              14%
     Observers                11%
     About Insurance Banana Skins
     The survey is the latest in the CSFI's long-running Banana Skins series
 on financial risk, initiated in 1994. This is the first survey specifically
 addressed at the insurance sector. Previous surveys have focused mainly on
 banking. For a copy of Banana Skins, please contact the CSFI: 5, Derby
 Street, London W1J 7AB. Tel: +44 (0)20 7493 0173
     About The Centre for the Study of Financial Information
     The Centre for the Study of Financial Innovation is a non-profit think-
 tank, founded in 1993, which looks at challenges to and opportunities for
 the financial sector. It has an affiliate organization in New York, the NY
     About PricewaterhouseCoopers
     PricewaterhouseCoopers ( provides industry-focused
 assurance, tax and advisory services to build public trust and enhance
 value for its clients and their stakeholders. More than 140,000 people in
 149 countries across our network share their thinking, experience and
 solutions to develop fresh perspectives and practical advice.
     "PricewaterhouseCoopers" refers to the network of member firms of
 PricewaterhouseCoopers International Limited, each of which is a separate
 and independent legal entity.

SOURCE PricewaterhouseCoopers