“The greatest risk facing the insurance industry is the raft of new regulations being introduced simultaneously at international and local levels, according to a 2011 global survey which ranks insurance sector risks” says Victor Muguto, PwC Southern Africa Insurance Leader. He adds that “In South Africa the combined effect of the Solvency Assessment and Management, Twin Peak Prudential and Market Conduct proposals are significant examples”.
The 2011 survey conducted by the Centre for the Study of Financial Innovation (CSFI), in association with PwC, says that new rules governing issues such as solvency and market conduct could swamp the industry with costs and compliance problems.
The survey polled 490 insurance practitioners and industry observers in 40 countries – including 4 South African respondents.
Some high-ranking concerns revealed by the survey include the availability of capital to meet tougher regulatory requirements – particularly in the EU. Respondents from the US, Bermuda, the Far East and South Africa also expressed similar concerns. Other concerns include the uncertain state of the world economy and financial markets. Sluggish world economic growth has a significant impact on the demand for insurance, while resurgent inflation negatively impacts insurance portfolios. A combination of economic recession, low interest rates and sovereign debt fears in the euro zone has also cut investment returns at a time when the industry badly needs them. These are adding to the pressures on an industry which is already being squeezed by slow growth and intense competition.
Muguto adds that “Insurers’ attention has clearly changed, with much more focus on how to deal with the increasing regulation they face. This could potentially distract key resources and talent away from opportunities to grow their business. However, to gain a competitive advantage, insurers need to move the regulatory burden away from a box-ticking exercise, to something that is embedded in the businesses and used to manage the changing risk profile. All this is set against a challenging backdrop of increased natural catastrophes, low interest rates and uncertain world economy.”
|Insurance Banana Skins 2011
(2009 ranking in brackets)
|3||Macro-economic trends (4)|
|4||Investment performance (1)|
|5||Natural catastrophes (22)|
|7||Long tail liabilities (10)|
|8||Corporate governance (17)|
|9||Distribution channels (16)|
|10||Interest rates (11)|
|11||Political risk (18)|
|12||Actuarial assumptions (9)|
|13||Managing costs (14)|
|14||Management quality (13)|
|15||Risk management (6)|
|17||Back office (24)|
|18||Retail sales practices (25)|
|19||Complex instruments (8)|
|20||Climate change (28)|
|24||Product development (29)|
|26||Managing mergers (31)|