Insurance products distribution and dependence on intermediaries are the slipperiest banana skins for Czech insurers

Zobrazit stránku: Česky

1 June 2011 – According to the latest “Insurance Banana Skins” survey conducted by the Centre for the Study of Financial Innovation (CSFI) together with PwC, some distribution channels, retail sales practices, particularly in life insurance, and the impact of climate change are the greatest risks facing Czech insurers. Marek Richter, a PwC Czech Republic Partner and insurance expert, comments on the top ten most serious risks for the Czech insurance sector.


1. Distribution channels

“Distribution channels ensure sales of insurance products to clients of insurance companies. As these intermediaries are usually rewarded based on intermediary commissions, their motivation is not always the same as that of an insurance company or a policyholder. Intermediaries very often act as financial advisors and have the possibility and opportunity to influence a client’s decision, which does not have to meet his or her needs.”


2. Retail sales practices

“Retail sales practices represent a risk mainly in the area of life insurance where insurance contracts are being regularly re-written. Life insurance policies often become unprofitable and this loss may be further transferred to the client. Bonus schemes applied to insurance intermediaries are among the key drivers when it comes to re-writing insurance contracts.”


3. Climate change

“Changing climate may have a significant impact not only on natural disasters, but also on the length of human life. It is difficult to estimate the impact of climate change on insurance protection and how these factors should be considered in actuarial calculations, which form the basis of how insurance products are designed.”


4. Natural catastrophes

“In light of recent catastrophic events, it is clear that we are still unable to estimate with sufficient accuracy the extent of natural catastrophes. This has an impact not only on adequate product pricing in non-life insurance, but also on the ability of insurers to meet their obligations in all circumstances. In the Czech Republic, repeated flooding is very topical, mainly considering the increased frequency of such events.”


5. Complex financial instruments

“Usage of complex instruments brings with them the risk that these instruments are not understood fully or in appropriate detail by their users. Inaccurate quantification of related risks may lead to unexpected losses for the insurance company.”


6. Regulation

“Insurance companies currently expect significant changes related to the launch of the new Solvency II regulatory framework. This framework represents a new view on the regulation of the entire insurance industry. This new regulatory framework will introduce new individual capital requirements for insurance companies. In connection with these changes, insurance companies will need to introduce many process changes and incur substantial transformation costs.”


7. Actuarial assumptions

“Various actuarial calculations stand behind the actual structure and appearance of insurance products. Given the increasing complexity of insurance products, these calculations are themselves becoming more complicated. In the event of a mistake or the omission of factors that may not be obvious, an insurance company could incur substantial losses.”


8. Corporate governance

“Following the financial crisis, financial markets place more emphasis on corporate governance. Corporate governance should be transparent and resistant to risks. These risks mainly relate to behaviours and the possible failure by representatives at all managerial levels to make correct business decisions.”


9. Long tail liabilities

“Various parameters related to historical claims are used in actuarial calculations. Only available claim history is taken into account within the calculations and it is possible that some rare but significant claims may not be considered appropriate.”


10. Risk management

“As the managed underwriting of risk is at the heart of the insurance business, appropriate risk modelling is a vital task. Various risk management models have their specifics and their limitations. Excessive reliance on the results of risk management analyses, without considering their weaknesses, may lead to unexpected losses.”




  1. The CSFI’s “Banana Skins” series provides periodic snapshots of the risk landscape in the financial services sector. As well as the banking series, the CSFI conducts surveys of the risks in insurance and microfinance.

    The Centre for the Study of Financial Innovation, founded in 1993, is an independent not-for-profit think tank based in London which researches the future of financial services. It has an affiliate in New York, New York CSFI. The CSFI has been producing regular Banana Skins surveys since 1995.
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