According to the annual ‘Banana Skins’ survey of perceived risks to the sector conducted by the Centre for the Study of Financial Innovation* (CSFI) and PwC, cyber risk tops the list of concerns for UK insurers.
The UK’s insurance industry shares the global concern about burgeoning regulation, particularly its cost and distraction, but also its potential to damage the international competitiveness of London as the world’s insurance capital if it’s heavily “gold plated”.
By contrast, UK concerns around the macroeconomic situation and the outlook for interest rates is much lower than the global average. The outlook for investment performance is also seen to be stronger by UK insurers.
Most of the risks outlined in the Top 10 centre on the rapidly changing insurance risk landscape and the new challenges facing the industry: cyber risk, the reshaping of distribution channels (with the parallel emergence of new technology) and the demand for new-style products.
The ability of the industry to handle these changes is, itself, seen as a high risk. ‘Change management’ is the third biggest worry for UK insurers, while it’s interesting to note that concern about the industry’s ability to attract talent is also higher than the global average.
Disruptive impact of new technology
Stephen O’Hearn, PwC’s global insurance leader, commented: “The long-term prospects for the insurance sector are positive as people around the world live longer and have more wealth to protect. However, insurers also face the disruptive impact of new technology, changing customer expectations, more exacting regulation and enduring economic uncertainty.”
Mark Train, PwC’s global insurance risk leader, added: “The ability to identify and manage emerging as well as familiar risks is at the top of the Boardroom agenda and will be one of the key differentiators for success in a marketplace that offers considerable long-term opportunities, but also disruptive threats.”
The CSFI’s Insurance Banana Skins Survey 2015 was conducted in March and April 2015 and is based on 806 responses from insurance practitioners and industry observers emanating from 54 countries. The objective was to find out where respondents saw the greatest risks over the next 2-3 years.
Breakdown by type of respondent was as follows:
Non-life: 34%, Life insurance: 27%, Reinsurance: 6%, Insurance brokers: 5% and Observers: 28%. There were 74 responses from the UK. These were as follows – Non-life: 23 respondents, Life insurance: 13 respondents, Reinsurance: 0 respondents, Insurance brokers: 10 respondents and Observers: 28 respondents.
Insurance ‘Banana Skins’ in 2015
The CSFI/PwC study shows the following Top 25 ‘Insurance Banana Skins’ for both the the global stage and the UK:
*The Centre for the Study of Financial Innovation is a non-profit Think Tank founded in 1993 which looks at challenges and opportunities for the financial sector