on July 13, 2013 by admin in Insurance Industry, Comments (0)

Regulation is "top banana skin" for the insurance industry

The Centre for the Study of Financial Innovation (CSFI), in association with consulting firm PwC, has released the results to its survey of the greatest risks facing the insurance industry, with regulation coming in at number one for the second year in a row.

The report titled Insurance Banana Skins 2013 examined the risks facing the industry with insights from over 660 insurers, regulators and observers across 54 countries.

The top risks identified were:

1. Regulation (unchanged from 2011)

2. Investment performance (4th in 2011)

3. Macro-economic trends (4th in 2011)

4. Business practices (18th in 2011)

5. Natural catastrophes (unchanged from 2011)

The importance of regulatory changes in the Latin American insurance landscape cannot be understated. With all of the major markets in the region heading towards the introduction of risk-based supervision, and additional reforms including changes to contract laws, implementation is likely to dominate proceedings in the coming years.

Concern over regulatory risk in the survey was global and put into focus the timing of changes when industry profitability is under pressure from poor investments performance, brought on by low interest rates, and coming at a time of highly uncertain macroeconomic conditions.

Regulatory risk has also been highlighted by the more recent news that the US has moved to designate insurer AIG as systematically important, heralding a potentially significant increase in supervision and in capital requirements for large insurance firms.

In addition, the Financial Stability Board expects to identify an initial list of G-SIIs whose collapse could endanger the entire financial system in July 2013, with a decision due by July 2014.

Other risks also include the issue of funding 'guaranteed' products in a low interest rate environment and the quality of risk management.

According to David Law, global insurance leader at PwC, "consumer protection is now coming back under the spotlight. A clear reflection of this is the rise of poor sales and other conduct of business practices from 18th place in 2011 to fourth in the latest risk ranking."

The report also includes the list of what it calls 'the dogs that didn't bark' in the year, such as the availability of capital which has moved from number two in 2011 to number 16 in 2013. Other risks that have lost importance included corporate governance and human resources.

While the top risks are fresh in the minds of insurance executives, it is the risks that are not being talked about that could become the most significant.

According to Andrew Hilton, the director of CSFI, "all of these have plunged so sharply as perceived risks that one might be tempted to wonder if they are now so far out of management's sight that a nasty accident is inevitable."

The full report is available from the following link.

Article source: http://www.bnamericas.com/news/insurance/regulation-is-top-banana-skin-for-the-insurance-industry

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