Macroeconomic trends and a slow growth rate top the global insurance industry’s risk agenda

EY report highlights top 10 risks for insurers.

As global insurers adjust to the environment of lower asset returns and stricter regulation, macroeconomic trends and the slow growth rate top the global industry's risk agenda, according to a new report released today by EY Business Pulse: Exploring the dual perspectives of the top risks and opportunities in 2013 and beyond.

Our research is based on a survey of executives at over 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 capitalise on, given these risks.

"In their search for growth and revenue, insurers need to optimise 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 their business,” says Shaun Crawford, EY's Global Insurance Sector Leader.

The top 10 risks identified globally by the research 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 organisation

10. Availability and cost of capital: a continuing concern and how to attract investors

As highlighted in our report, there are many opportunities for insurers to improve their business, enhance revenue and focus on the customer. Improved distribution and product development dominates our list of this year's opportunities and is expected to remain high in the rankings by 2015. Paul Clark, Asia Pacific Insurance Leader, adds: "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.”

Trevor Rorbye, Director for Advisory Insurance comments, "From a South Africa perspective, insurers remain the most positive in terms of their overall business outlook amongst banks, asset managers and insurers as measured by the quarterly EY Financial Services Index. This confidence means that we have seen some degree of correlation between the risks faced by the top South African insurers, which are generally regarded as mature businesses, and those risks highlighted by the global survey. However, the degree of impact of the globally recognised risks is generally quite different and this results in the order of the risks as shown in the global survey changing when it is translated at a local level.

Rorbye concludes: "In addition, many of the large insurance groups in South Africa are now rapidly growing their businesses across Africa. Here the risks and opportunities are significantly different from those faced by mature insurance businesses. For instance, one sees risk issues such as; the lack of detailed knowledge of the local market conditions impacts on the knowledge of the target customer segments to pursue, the specificity of the products and solutions that are offered, as well as, the optimal distribution method to be used. In addition, other risks such as the threat of indigenisation and relevant localisation laws are very significant risk issues that appear to vary from one country to the next. The variation of these risks and opportunities across different countries also adds to the overall risk profile for the insurer. This increased level of risk means that from a brand and reputation perspective, a large South African insurer must ensure that it has strong risk management practices across Africa and given the higher level of overall risk it must demand higher levels of return in these countries.”

The full report, EY's Business Pulse: top risks and opportunities for 2013 and beyond, can be accessed at www.ey.com/insurance.