Regulatory Environment, Cyber Risk and Interest Rates Rank as Top Concerns for Canadian Insurance Sector

Jul 15, 2015, 09:58 ET from PwC (PricewaterhouseCoopers)

Poll shows alignment between Canada and Global counterparts in assessment of industry risk factors but Canadian industry is better positioned to mitigate those risks

TORONTO, July 15, 2015 /CNW/ - A risk survey, by the Centre for the Study of Financial Innovation (CSFI) in association with PwC, identified the regulatory environment, cyber risk and low interest rates as top concerns for the Canadian insurance industry. Consistent with global counterparts, cyber risk and interest rates are new to the rankings this year alongside perennial concerns around regulatory developments and the broader macro-economy.

Regulatory risk emerged as the overall top risk for Canadian and global participants in the survey for the third successive year. While regulatory change is top of mind globally, for Canadians, the regulatory environment remains consistent with concern being driven by the impact of policy decisions and intrusion on product pricing and design.

Cyber risk and interest rates round out the top three risks for Canadian insurers, indexing slightly higher than their global counterparts, Canada did not diverge widely from the global response with nine of the top ten risks in the country also appearing on the global list. With their large data bases and complex business ecosystems, cybercrime continues to create challenges for the industry and rocketed to second place as a concern for Canadian insurers.  Similarly, while insurers were able to make adjustments accounting for low interest rates, as rates remain low, a focus on further product and pricing changes is required often at the cost of product innovation.

"Canadian insurance companies are some of the biggest international operators. It is no surprise that, given the scale of their operations and rich data holdings, cyber security emerged this year as a top concern leaving many players in the sector believing that a data breach is not a matter of if but when," said Chris Couture, PwC Canada's National Insurance Leader. "Between more regulatory scrutiny around data security and greater demand for online services in an often strained and antiquated IT environment, there is no doubt that this will remain at the forefront as a driver of change within the industry."

According to the 2015 Insurance Banana Skins Survey, the top ten Canadian and Global Industry risk factors in 2013 include the following:

2015 Top 10 Risks (2013 results in brackets)



Regulation (1)

Regulation (1)

Macro-economy (3)

Cyber risk (-)

Interest rates (-)

Interest rates (-)

Cyber risk (-)

Macro-economy (2)

Investment performance (2)

Change management (16)

Change management (15)

Guaranteed products (4)

Guaranteed products (6)

Distribution channels (11)

Distribution channels (11)

Investment performance (5)

Natural catastrophes (5)

Quality of risk management (14)

Quality of risk management (7)

Political interference (10)

Global Results

The EU's Solvency 2 Directive, to be introduced next year, was the focus of strongest concern, but many other countries are introducing similar measures, often modelled on Solvency 2. While the beneficial impact of tighter regulation was acknowledged, the survey responses showed regulation is also widely seen as excessive and overbearing. 

This view was held both by practitioners and outside observers of the industry (academics, consultants, analysts etc.)  Typical responses from insurance company directors included: "A sound regulatory environment is absolutely essential. At the same time, over-regulation potentially strangles perfectly good and sound insurers from conducting good and sound business."

A second cluster of concerns surrounds macro-economic risk, where respondents were cautious about the outlook for growth, as well as for interest rates whose low levels have depressed investment yields and made savings products more difficult to manage and sell.

A third cluster of risks is emerging in the area of industry change, particularly the impact of new technology on security, product delivery and data management.  Cyber risk appears for the first time since the survey was initiated in 2007, and is highly placed at No. 4 overall (no.1 for non-life insurance), reflecting rapidly growing concern about cybercrime and data security.

The digitization of the industry also threatens traditional business models in the areas of distribution, new entrants and client interface. Many respondents expect to see major structural change in the industry in the coming years.

A number of risks have receded, among them the quality of management and corporate governance in insurance companies, where marked improvements are seen to have taken place. These were once ranked among the top risks facing the industry.  Also declining is reputation risk as insurers become more pro-active in public relations, though the growth of social media is seen as a rising threat to reputation management.

The 2015 Banana Skins Index, which measures the level of anxiety in the industry, is at a record high despite the improving global situation. David Lascelles, survey editor, said: "The insurance industry faces enormous challenges in the growth of regulation, a difficult operating environment, and the looming threat of structural change.  This is reflected in the negative sentiment behind this survey".

Stephen O'Hearn, PwC Global Insurance Leader, commented: "The long-term prospects for insurers are positive as people around the world live longer and have more wealth to protect. Yet they also face the disruptive impact of new technology, changing customer expectations, more exacting regulation and enduring economic uncertainty. Insurers' ability to identify and manage emerging as well as familiar risks will be one of the key differentiators for success in this volatile competitive environment."

Mark Train, PwC Global Insurance Risk leader, said: "We're pleased to support the CSFI's Insurance Banana Skins initiative, which provides valuable insights into the risk concerns at the top of the boardroom agenda. The ability to identify and manage emerging as well as familiar risks will be one of the key differentiators for success in a marketplace that offers considerable long-term opportunities, but also disruptive threats."

The survey is the latest in the CSFI's long-running Banana Skins series on financial risk.  Previous Insurance Banana Skins surveys were in 2007, 2009, 2011 and 2013. The 2015 global report can be downloaded at or the CSFI website: and the Canadian report can be viewed at


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Notes to Editors:


The CSFI's latest 'Insurance Banana Skins 2015' survey, conducted in association with PwC, polled over 800 insurance practitioners and industry observers in 54 countries, to find out where they saw the greatest risks over the next 2-3 years. The breakdown by type of respondent was:

Global Percentage

Canadian Percentage




Life insurance














The CSFI (Centre for the Study of Financial Innovation) is a non-profit think-tank, founded in 1993, which looks at challenges and opportunities for the financial sector. It has an affiliate organization in New York, the New York CSFI.

SOURCE PwC (PricewaterhouseCoopers)