As insurers adjust to a new environment of lower asset returns and stricter regulation, macroeconomic trends and a slow growth rate top the industry’s risk agenda, according to new research.
Global financial consultants Ernst & Young surveyed more than 65 insurance companies across the globe, who shared their insights and perspectives on the factors driving the industry over the next five years.
The study identified the top 10 most important risks facing the industry, along with the opportunities insurers can capitalize on.
The report, Business Pulse: Exploring the dual perspectives of the top risks and opportunities in 2013 and beyond, found the top 10 risks are:
1. Macroeconomic trends: how to deal with on-going slower growth
2. Regulation: a broad set of new regulations are emerging as a major source of risk
3. Eurozone debt crisis: factoring in the global consequences of the crisis
4. Reputational risk: safeguarding your reputation
5. Corporate governance failures: with regulatory change, stakeholders seek confidence in corporate governance
6. Cyber risk and data security: how to contain the growing threat
7. Talent recruiting skills: acquisition and retention of talent challenges insurers
8. Impact of tax and accounting changes: recent actions are closely tied to regulation risk
9. Operational risk: quantification of risk on the organization
10. Availability and cost of capital: a continuing concern and how to attract investors
EY experts said the list makes it clear that the insurance sector needs to adjust to a new environment of lower returns on assets and stricter regulation.
“In their search for growth and revenue, insurers need to optimize capital and asset liability strategies, remain cost competitive, while not losing sight of their customers’ needs. Adapting to evolving market and regulatory change will be a challenge that requires employing new technologies and building flexibility into all aspects of our business,” said Shaun Crawford, EY’s global insurance sector leader.
EY Asia Pacific leader, Paul Clark, stressed that there are also opportunities for insurers such as improved distribution and product development; promoting fair outcomes for customers; shifting sales accommodate changing customer needs; more effective governance and growth in emerging markets.
Other opportunities include re-optimizing capital structures and redesigning asset liability strategies; the impact of global demographic changes, personalising insurance policies; the growth of data and analytical tools; and the rise of social media.
“Today’s insurers are enabling advances in product development through new metrics and social media tools, promoting the advantages of insurance to a younger audience and better interacting with customers approaching retirement,” Clark added.