Wave of new regulation tops insurance sector risks ‘Banana Skins’ poll pinpoints key concerns for insurers

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Insurance Banana Skins 2011

(2009 ranking in brackets)



Regulation (5)


Capital (3)


Macro-economic trends (4)


Investment performance (1)


Natural catastrophes (22)


Talent (-)


Long tail liabilities (10)


Corporate governance (17)


Distribution channels (16)


Interest rates (11)


Political risk (18)


Actuarial assumptions (9)


Managing costs (14)


Management quality (13)


Risk management (6)


Reputation (15)


Back office (24)


Retail sales practices (25)


Complex instruments (8)


Climate change (28)


Reinsurance (20)


Fraud (23)


Terrorism (26)


Product development (29)


Pollution (34)


Managing mergers (31)


1 June 2011 – According to a new survey which ranks insurance sector risk, the greatest risk facing the insurance industry is the raft of new regulations being introduced simultaneously at the international and local levels. 

The CSFI’s latest Insurance Banana Skins survey, conducted 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. It could also distract management from the more urgent task of running profitable businesses at a time when the industry is already under stress.

The survey polled nearly 500 insurance practitioners and industry observers in 40 countries to find out where they saw the greatest risks over the next 2-3 years. Regulatory risk emerged as a clear leader in all major markets, including North America, Europe, the Middle East/Asia and the Far East/Pacific.

Solvency II and other new rules

The EU’s Solvency II Directive, due for implementation by the end of this year, was the focus of strongest concern. But the survey also identified new international reporting standards, the UK’s review of retail distribution practices and other tax and regulatory initiatives as swelling a heavy agenda.

Other high-ranking concerns revealed by the survey include the availability of capital to meet tougher regulatory requirements, and the uncertain state of the world economy and financial markets.  These are adding to the pressures on an industry which is being squeezed by low interest rates and intense competition.

Natural disasters

A category that showed a dramatic shift in this year’s ranking of 26 risks was the incidence of natural catastrophes, in response to recent disasters in New Zealand and Japan. A second issue that also showed strongly dramatic shift is that of political risk, a consequence of events in the Arab world, plus growing concerns about the solvency of some eurozone countries. A new entrant to the list of risks is the shortage of talent which emerged as a major issue in all regions.   

On the other hand, a number of risks have fallen in urgency, among them the use of complex instruments which created difficulties for insurance companies during the financial crisis. The industry’s capacity to manage risk is also seen to have improved.

Despite a high incidence of floods, bombings and oil spills over the last couple of years, concerns about climate change, terrorism and pollution risks remain low. These are seen to be manageable underwriting risks, and less threatening to the insurance business than regulatory change.

“These results show an industry that is being pressed on many sides at once, and will need skilled management to get through. It is not clear whether new regulation is helping or hindering it, ” Marek Richter, insurance leader at PwC Czech Republic, said.

“The number of insurance company CEOs find the current regulatory requirements exaggerated. They are asking whether the costs will not exceed the benefits. It seems that the industry is under stronger fiscal pressures than in the past. All that occurs in the times when insurance companies are trying to start a new growth of premium, comprehensibly approach new groups of customers with new products, minimise the impact of higher cancelation rates of current insurance contracts and improve and streamline management of insurance risks related to the growing frequency of natural disasters,” Marek Richter added.


A sector by sector breakdown of the insurance industry shows that the “life” side is specifically concerned about the impact of low interest rates on investment performance, and the task of managing complex and competitive retail distribution networks. On the “non-life” side, the main concerns are with excess capacity and competitive pricing, along with the impact of the surging number of catastrophe claims.

Notes to Editors:

  1. The Insurance Banana Skins 2011 survey was conducted in March and April 2011 and is based on 490 responses from 40 countries. The breakdown by type of respondent was:
  2. The survey is the latest in the CSFI’s long-running Banana Skins series on financial risk.  Previous Insurance banana Skins surveys were conducted in 2008 and 2009.
  3. The CSFI (Centre for the Study of Financial Innovation) is a non-profit think-tank, founded in 1993, which looks at challenges to and opportunities for the financial sector. It has a  affiliate organisation in New York, the New York CSFI.
  4. PwC (www.pwc.cz) provides industry-focused assurance, tax & legal and advisory services to build public trust and enhance value for our clients and their stakeholders. More than 161,000 people in 154 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.

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