CSFI Report Finds Regulatory Burdens Top List of Industry Concerns

“Too much regulation” tops the list of industry concerns according to a recent survey compiled by the Centre for the Study of Financial Innovation (CSFI) in association with PricewaterhouseCoopers LLP. The “Banana Skins” survey has analyzed the banking industry’s main concerns for a number of years, but this is the first report the two organizations have compiled on the insurance industry.

While overly burdensome regulations topped the list (as it does in the banking survey), the industry has a lot of concerns. Rounding out the top 10 were: 2-Natural catastrophes; 3-Management quality; 4-Climate change; 5-Managing the cycle; 6-Distribution channels; 7-Long tail liabilities; 8-Actuarial assumptions; 9-Longevity assumptions, and 10-New types of competitors.

Risk management techniques came in at #14; terrorism at #18; concerns over reinsurance security at #27 and availability of reinsurance at #28; while fraud was down at #30 and asbestos closed out the list at #33.

The survey queried more than 100 respondents from all sectors of the industry. They generally concurred that “excessive regulation is endangering the industry by loading companies with costs, distracting management and creating barriers to competition and innovation,” said the CSFI’s bulletin. “This finding is linked to concern about growing political interference, particularly in markets where governments regulate insurance products and prices.”

The broad-based survey, which gathered responses from 21 countries, found over regulation to be the main concern in North America, Europe, South Africa and the Asia Pacific. “Sectorally, concern is strongest among life insurance companies, followed by the property & casualty sector,” the bulletin noted. David Lascelles, the survey’s editor, commented: “Over-regulation is clearly a major issue for a large part of the finance sector, not just banking. It also appears to be a global phenomenon.”

Jeremy Jensen, partner, PricewaterhouseCoopers LLP noted that the “focus on regulation will only increase over the next few years, as insurers face a number of new demands, not least the coming overhaul of financial reporting and Solvency II. A key challenge is to develop effective risk management systems which can provide both compliance and also improved business execution.”

Although it doesn’t top the list, the survey found that many of its respondents consider the “quality of management” to be a major concern. “Responses to the survey show widespread doubts about the industry’s ability to meet growing challenges from regulation, new competitors, technological change and product innovation,” said the bulletin. One aspect highlighted in the survey is the industry’s difficulties in attracting “new blood because of an image problem.”

There are also lingering concerns over modernizing office procedures. “Much of the industry is technologically obsolete,” the study found, “even paper-based, which ties its hands when competing with new entrants into the business.” Banks and Internet-based suppliers are in a better situation, and pose a challenge to traditional insurers and brokers. Modernizing back office systems and employing advanced technology should become a higher priority, if the industry wants to meet that challenge.

The CSFI’s “Banana Skins” survey may be obtained by contacting its London office at: CSFI: 5, Derby Street, London W1J 7AB. Tel +44 (0)20 7493 0173.