Insurance Banana Skins 2015

PwC_PC_France_Paris_MB_060.jpgWhat risks do insurers worldwide face in the current climate and how are they prioritising them?

Even though there has been an important shift in the risk perception of the insurance industry, regulation tops the survey for the third year running.
Regulation is once again a prominent Banana Skin across all segments of the industry. The survey identified that there is a widespread fear within the industry and among observers that the volume of the regulation is swapping the industry and is calling into question longstanding strategic certainties. This risk is followed by Macroeconomic Risk and Interest Rate Risk (new entrant) in terms of the global findings.

The new Banana Skin Cyber Risk is ranked as number 4 of the survey (and ranked as 1 in non-life insurance sector), as more business moves to online and mobile channels, and insurer’s vulnerabilities to hacking, fraud and data compromise continue to amount.

As you will see in the paper, in general terms, there had been some important changes in terms of the risks identified by insurance practitioners and observers, which may lead into different strategies needed by the market.

Who said what in the Survey?

By Geography
A breakdown of responses by region showed different priorities. Please find below the highlight found in the different regions surveyed:

North America and Bermuda
Cyber attacks and data breaches were seen as specially urgent in this region, topping the rankings by some margin. The main concerns were to do with regulation and the macro-economic environment, with a particular focus on the impact of low-interest rates on profitability.

More than half of the responses this year came from Europe. The persistently low-interest rate environment was seen as a more severe threat than in any other region, leading to particular concerns about guaranteed products and investment performance. The major risks were in line with the global response: regulatory requirements and industry risks dominated by insurer’s difficulties in adapting to change, notably in technology.

Far East/ Pacific
The top risks in this region were about keeping up with the technological change in the industry, from the growing sophistication of cyber-crime to emerging distribution channels that are creating competition from new entrants. This was also seen as having an impact on the industry’s ability to attract and retain the right talent. On the other hand, respondants showed more optimism about the macro-economic environment than any other region that was surveyed.

Latin America
Public environment risks were seen as more urgent in Latin America than any other region in the world. Concerns about the volume and complexity of new regulation topped the rankings by a distance, while political interference also breached the top 10. Elsewhere, there was considerable variants from the global results. Institutional risks specially the quality of risk management and business practices- were seen to be higher, and there were specific concerns about climate change and capital availability. On the other hand, there was less anxiety about the industry’s ability to respond to change.

By Types of Respondant

Life Insurance
The life sector’s main concerns are linked to the economic environment, particularly the persistance of low-interest rates and their impact on saving products (such as guaranteed annulities) and investment returns. Main concerns about the industry are around the growth of cyber risk and changes affecting the structure of the industry, such as methods of distribution, competition and pricing. Concern about political interference centres on issues such as refund of pensions and health care.

Non-Life Insurance
The property and casualty side of the business was, as might be expected, primarly concerned with underwriting risk, specially the growth of cyber risk and the continuation of high levels of catastrophe risk. Climate change also featured in the top 10. As with other sectors, the weight of new regulation was a strong concern, as was structural and technological change in the business, particularly distribution.

The main concern centres on the soft conditions created by excess capacity and “new” types of capital and what many see as onerous regulation of the market. The lack of robust and well- defined market for cyber risk is another top concern. Interest rates rank high because low yields affect investment returns; so do natural catastrophes because reinsurers bear the brunt.

Brokers / Intermediaries
Changes to the structure of the industry are at the head of broker’s concerns, particularly issues linked to the client interface: distribution and major insurance risks such as cyber, climate change and natural catastrophes. The quality of management in insurance companies is another high concern.

It is significant that observers place regulation at the top of their concerns because this suggest that the perception of regulatory excess is not merely held by the industry. Observers were also concerned about the economic environment for insurance, particularly low interest rates and the effect this has on investment performance.

For more information please follow the LINK or please contact my colleagues:

Arturo Tuesta

Bryan Cottle

Daniela Mendez

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