The Hindu Business Line : Excessive regulation strangling global insurance sector: Survey

Chennai June 16 The burden of too much regulation is the greatest risk currently facing the global insurance industry, according to `Insurance Banana Skins 2007,' a survey of the risks facing insurers published by PricewaterhouseCoopers in association with the UK-based Centre for the Study of Financial Innovation (CSFI).

According to the survey, new rules and compliance requirements are eroding the profitability of the industry and distracting management from the task of running an efficient business.

The survey reports the concerns of leading members of the insurance industry about the soundness of financial markets.

Conducted in February and March 2007 and based on 139 responses from 21 countries, it identifies potential sources of risks to insurance companies and ranks them by severity.

`Banana skins'

Excessive regulation is followed by other `banana skins' such as natural catastrophes, management quality, climate change, distribution channels and new types of competitors.

The survey is a companion piece to the `Banking Banana Skins' survey that has been prepared by Mr David Lascelles for the CSFI annually since 1996.

The CSFI is a non-profit think-tank, established in 1993 to look at future developments in the international financial field, particularly from the point of view of the practitioners. Its goals include identifying new areas of business, flagging areas of danger and provoking a debate about key financial issues.

In the report, Mr Andrew Hilton, Director of the CSFI, said: "The insurance industry is all about risk - both the risks we know and the risks we don't. And the links with the banking industry are obvious, as are the differences."

Another report

He added that the CSFI is shortly to publish another report that makes "a powerful case" for the premise that bankers and insurers speak completely different languages and are unable to communicate with each other.

The model that the CFSI developed over the years for identifying the "banana skins" on which bankers are likely to slip on has been carried over to the insurance industry.

Mr Ian Dilks, Global Insurance Leader, PricewaterhouseCoopers, said that the unique format of the `banana skins' series provides "a fascinating insight into emerging and ever-present risks and concerns at the top of the boardroom agenda and how these perceptions change over time."

He added: "The number one banana skin in this survey, as with banking, is concern about over-regulation. Such misgivings can only increase over the next few years as insurers face a number of new demands."

Stating that management quality figures at third spot in the survey, Mr Dilks said: "The insurance industry must offer the rewards, both financial and professional, to attract and retain the brightest and the best. According to the survey, reinsurers are mainly concerned with the problems of managing the insurance cycle at a time when it is turning down.

They were also concerned with major risk issues such as natural catastrophes, long tail liabilities and risk management techniques.

The fastest-rising risks are all very topical: climate change, catastrophe, pollution and terrorism.

With their heavy dependence on investment performance, the growing uncertainty surrounding the outlook for equities poses a potential risk for the industry, particularly the life sector, which put this risk at ninth place.

Though low in rankings, terrorism emerged as one of the fastest-rising risks.

"Given Afghanistan, Iraq and Iran, terrorism remains a key concern," said a respondent. "It will continue to rise," said another.

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