Regulation is the top industry concern, PwC survey shows

Biennial survey shows that insurers fear that new rules will have a detrimental impact on profitability

Toronto, ON (Jul. 17, 2013) – Increased insurance regulation is putting significant pressure on the industry, according to the newly released results of the biennial Insurance Banana Skins survey.

The survey, produced by the Centre for the Study of Financial Innovation in association with PwC, polled over 600 insurance practitioners and industry observers across 54 companies to determine where they saw the greatest risks over the next two to three years. Results from the 47 Canadian responses shows that of the 27 industry concerns identified, regulation sits at the top of the list, up from the 9th position two years ago. Regulation is also the top issue globally, as it was in 2011.

“Additional regulation drives activities for insurers beyond compliance – as regulation increasingly transcends broad aspects of the business (from areas such as board governance to data management) insurers are faced with a greater volume, complexity, and interdependency of regulatory requirements. This creates additional effort and associated costs in audit, legal, operations and technology departments at a time when all insurers are aggressively trying to manage operational costs”, says Allan Buitendag, PwC’s National Insurance Consulting Leader. “Such challenges are compounded for insurers who are members of global organizations and face multi-jurisdictional regulation”.

Other concerns the report highlighted include the macro-economic environment as the second most pressing, up from 13th two years ago. Although Canada continues to perform better than many other countries in the developed world, respondents are worried that global issues, particularly in the European Union, will impact Canadian results. 2011’s chief concern, long tail liabilities, dropped to number three. New issues appearing this year include innovation (8) and social media (13), both of which are ranked much higher in Canada than worldwide (13 and 21, respectively). This may be a response by Canadian insurers to the battle on distribution and more rapidly changing customer expectations than in other regions.

Compared to their global counterparts, Canadians show lower levels of concern with institutional issues like quality of management and governance and, when asked how well prepared insurers are to handle the identified risks, Canadian responses scored well above the global average.

What are the most pressing concerns for the insurance industry?
(2011 rankings in brackets)
Canada World
1 Regulation (9) 1 Regulation (1)
2 Macro-economic environment (13) 2 Investment performance (4)
3 Long tail liabilities (1) 3 Macro-economic environment (3)
4 Guaranteed products (-) 4 Business practices (18)
5 Investment performance (6) 5 Natural catastrophes (5)
6 Natural catastrophes (15) 6 Guaranteed products (-)
7 Climate change (20) 7 Quality of risk management (15)
8 Innovation (-) 8 Quality of management (14)
9 Actuarial assumptions (3) 9 Long tail liabilities (7)
10 Political interference (14) 10 Political interference (11)
11 Distribution channels (2) 11 Distribution channels (9)
12 Business practices (22) 12 Actuarial assumptions (12)
13 Social media (-) 13 Innovation (-)
14 Quality of risk management (10) 14 Reputation (16)
15 Quality of management (16) 15 Change management (-)
16 Change management (-) 16 Capital availability (2)
17 Human resources (11) 17 Corporate governance (8)
18 Crime (21) 18 Climate change (20)
19 Back office (17) 19 Human resources (6)
20 Reputation (24) 20 Product development (24)
21 Capital availability (7) 21 Social media (-)
22 Corporate governance (8) 22 Crime (22)
23 Product development  (19) 23 Complex instruments (19)
24 Reinsurance (25) 24 Reinsurance (21)
25 Pollution/contamination (26) 25 Back office (17)
26 Complex instruments (4) 26 Pollution (25)
27 Terrorism (23) 27 Terrorism (23)

“Many leading Canadian insurers have been undergoing operational-wide transformation over the past number of years. The combination of improved operational processes and controls supported by enabling technology has clearly given many of those surveyed additional piece of mind with respect to the risks associated with day-to-day operations”, said Buitendag.

For more information or to view the report, visit pwc.com/ca/insurancebananaskins.

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