PwC report reveals NZ insurance professionals most concerned about natural disasters, change management, distribution channels, cyber risk & reputation

Insurance professionals around the world are much more concerned about how regulation is affecting their industry, compared to those in New Zealand.

A PwC study has found that globally, insurance professionals consider “regulation” to be the largest risk facing their industry.

But here it’s hardly keeping them up at night.

The 43 NZ insurers, intermediaries and industry observers, who ranked their top 10 risks for a PwC survey conducted earlier this year, put “regulation” at number 12.

Of much greater concern, were natural catastrophes, change management, distribution channels, cyber risk and reputation.

Regulation

PwC partner and insurance sector leader, Karl Deutschle, says regulation around the insurance industry has become tougher in many parts of the world compared to NZ.

European Union members, for example, have had to invest heavily to comply with sophisticated new solvency requirements.

“That kind of thing hasn’t hit NZ yet”, Deutschle says.

A survey respondent even said, “Industry regulation is light and, as a result, there is insufficient transparency for customers”.

Nonetheless, NZ has seen greater regulation over the past five years, with the introduction of the Insurance (Prudential Supervision) Act 2010, and the sector becoming regulated by the Reserve Bank.

The PwC report says, “Regulators have started to invest significantly in enhancing their supervision through increased data collection. The cost of this regulatory compliance could be felt in New Zealand as much as it has been in other parts of the world.”

A survey respondent noted the strengthening of solvency and prudential supervision of insurers has been a positive.

However a number of respondents raised concerns over complying with ever-increasing regulations.

Someone noted that regulators should ensure “regulation continues to be balanced in protecting policy holders but not adding cost burdens that will push the cost of insurance to a level that forces people to drop out of having adequate coverage”.

Another respondent said, “Regulatory change will affect the industry in a number of ways. Increased capital will need to be retained for solvency purposes, potentially stifling investment. I foresee major changes from the [Financial Markets Authority] into how independent financial advisers can be remunerated.”

The government is currently considering following the UK and Australia by reducing or doing away with commissions for brokers and financial advisers.

It is perhaps due to these changes that PwC says, of the 806 responses it gathered from 54 different countries, the regulatory concern was highest amongst the likes of brokers, who are not direct practitioners in the industry.

Reputation

“Reputation” is another risk NZ insurance professionals have a very different view on compared to their colleagues around the world.

Reputation is considered the fifth largest risk facing the industry here, while globally it’s ranked 18th.

Deutschle notes NZ insurance professionals are still reflecting on how people view their handling of the Canterbury quakes.

While natural catastrophes remain the greatest risk facing NZ insurers, PwC says the emphasis has shifted more to reputational damage.

One respondent said, “People in Christchurch do not trust the general insurance industry”.

Another said, “Social media coupled with increasing premiums across the country will spread [distrust] and make the industry more despised”.

Changing environment

Both NZ and international insurance professionals consider the way the industry manages the changing environment it operates in to be a significant risk.

PwC reports, “Change management has made a big jump and is now the second highest risk in New Zealand, up from number 18 two years ago.

“Concerns are around commoditisation of the personal insurance environment and the disintermediation of traditional distribution models.”

A non-life respondent said, “Insurers appear to be slow in adopting web-based technologies to meet customer needs. Intermediaries jealously guarding their customer data may be partly to blame.”

PwC also notes a number of respondents thought non-traditional entrants could shake up the industry.

A respondent said, “New competitors with different approaches will provide what the customer requires if existing insurers ignore the changing marketplace. [But the danger is that] competitive forces will affect the profitability of the industry and leave it open to upheaval in the event of another natural catastrophe.”

NZ top 10 risks

1. Natural catastrophe
2. Change management
3. Distribution channels
4. Cyber risk
5. Reputation
6. Human talent
7. Product development
8. Long tail liabilities
9. Quality of risk management
10. Social change

Global top 10 risks

1. Regulation
2. Macro-economy
3. Interest rates
4. Cyber risk
5. Investment performance
6. Change management
7. Guaranteed products
8. Distribution channels
9. Natural catastrophe
10. Quality of risk management