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
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:
Life insurance 34%
Property & casualty 35%
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
PricewaterhouseCoopers (http://www.pwc.com) provides industry-focused
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