Regulation and human talent emerge as top risks for insurers in Singapore

PRESS RELEASE

For release on Wednesday 15 July 2015

REGULATION AND HUMAN TALENT EMERGE AS TOP RISKS FOR INSURERS IN SINGAPORE

‘Banana Skins’ poll reflects industry risk perception

Singapore, 15 July 2015 – A new survey charting the top risks in the global insurance sector shows that regulation and human talent are now among the top risks for insurers. This is indicative of how high a concern they have become for the industry.The CSFI’s latest ‘Insurance Banana Skins 2015’ survey, conducted in association with PwC,polled over 800 insurance practitioners and industry observers in 54 countries, to find out where they saw the greatest risks over the next 2-3 years.

In Singapore, the top risks that emerged are regulation, human talent and those relating to natural catastrophes, followed closely by cyber risk.

Regulatory risk emerged as the overall top risk for participants in the survey both globally and locally, underlining the deep impact regulatory change is having. Globally, regulation risk emerged as top risk for the third successive time.

Antony Eldridge, Financial Services Leader, PwC Singapore, comments:

“Regulation is once again a prominent Banana Skin across the industry, ranking top in both Singapore and globally. The latest wave of regulatory change is not only creating huge operational disruption, but is also calling into question longstanding strategic certainties. Costs, prices and returns could soon become unsustainable if the changes aren’t managed effectively.”

The report says that new rules governing solvency and market conduct could swamp the industry with costs and compliance problems. It could also distract management from the task of running healthy businesses at a time when the industry faces radical structural change.

The EU’s Solvency 2 Directive, to be introduced next year, was the focus of strongest concern, but many other countries are introducing similar measures, often modelled on Solvency 2. While the beneficial impact of tighter regulation was acknowledged, the survey responses showed regulation is also widely seen as excessive and overbearing.

This view was held both by practitioners and outside observers of the industry (academics, consultants, analysts, etc.) Typical responses from insurance company directors included: “A sound regulatory environment is absolutely essential.

This sentiment is echoed in Singapore where a Singapore respondent warned that over-regulation “potentially strangles perfectly good and sound insurers from conducting good and sound business”, noting: “We work in several jurisdictions and we find the Singapore regulatory environment the most onerous by some measure”.

Globally, a second cluster of concerns surrounds macro-economic risk, where respondents were cautious about the outlook for growth, as well as for interest rates whose low levels have depressed investment yields and made savings products more difficult to manage and sell.

Singapore firms were not as concerned about risks relating to the macro-economy (ranked 9 out of 25). A respondent noted, “The threat is lower than compared to the 2008 financial crisis, and no single event may have a significant impact”.

Interestingly, human talent emerged as the second highest risk in the survey in Singapore, which is much higher than the global average (ranked 15 globally). “A lack of experienced talent in the industry is leading to an overall reduction in the quality of underwriting and protection both at the direct and reinsurance level”, warned one respondent, while another said: “With higher mobility and increased competition for talent, it is challenging to attract and retain good staff”.

Billy Bennett, Insurance Leader, PwC Singapore, commented:

“While Financial Services as a sector faces a war for talent globally, the situation has become more acute in the insurance sector in Singapore. Now more than ever, how insurance companies challenge, develop and motivate staff, as well as attract new talent and fend off the banking sector is critical. Having the right team to manage and grow your business will become a real differentiator. The Singapore results of Insurance Banana Skins are a wake-up call.”

A third cluster of risks, globally, is emerging in the area of industry change, particularly the impact of new technology on security, product delivery and data management. Cyber risk appears for the first time since the survey was initiated in 2007, and is highly placed at No. 4 overall (ranked 1st for non-life insurance globally), reflecting rapidly growing concern about cybercrime and data security. Cyber risk was also ranked 4 ^th amongst Singapore respondents.

Said Antony Eldridge, Financial Services Leader, PwC Singapore:

“Risks relating to new technologies, for example the threat of cybercrime, are prominent concerns for the insurance industry. As such insurers are needing to bolster cybersecurity talent and resources to increase vigilance and do everything they can to get ahead of the curve.”

The digitisation of the industry also threatens traditional business models in the areas of distribution, new entrants and client interface. Many respondents expect to see major structural change in the industry in the coming years around the world.

Globally, a number of risks have receded, among them the quality of management and corporate governance in insurance companies, where marked improvements are seen to have taken place. These were once ranked among the top risks facing the industry. Also declining is reputation risk as insurers become more pro-active in public relations, though the growth of social media is seen as a rising threat to reputation management.

The 2015 Banana Skins Index, which measures the level of anxiety in the industry, is at a record high globally despite the improving global situation. David Lascelles, survey editor, said: “The insurance industry faces enormous challenges in the growth of regulation, a difficult operating environment, and the looming threat of structural change. This is reflected in the negative sentiment behind this survey”.

Singapore scored below average on the Banana Skins Index, implying a lower level of risk anxiety.

ENDS

Notes to Editors:

1. For further information, contact:

David Lascelles
CSFI
T:+44 (0)20 7621 1056 or +44 (0)7710 088658,
E: david@davidlascelles.com

Candy Li
PwC Singapore
T: +65 6236 7429 or +65 8613 8820
E: candy.yt.li@sg.pwc.com

Natalie Choo
T: +65 6236 4309 or +65 9738 1415
E: natalie.yl.choo@sg.pwc.com

2. The Insurance Banana Skins 2015 survey was conducted in March and April 2015 and is based on 806 responses from 54 countries. The breakdown by type of respondent was:

3. The survey is the latest in the CSFI’s long-running Banana Skins series on financial risk. Previous Insurance Banana Skins surveys were in 2007, 2009 2011 and 2013. It can be downloaded from the CSFI website: www.csfi.org

or from the PwC website: www.pwc.com/fs

4. The CSFI (Centre for the Study of Financial Innovation) is a non-profit think-tank, founded in 1993, which looks at challenges and opportunities for the financial sector. It has an affiliate organisation in New York, the New York CSFI.

5. PwC is a network of firms in 157 countries with more than 195,000 people who are committed to delivering quality in assurance, tax and advisory services. More information is available at the firm's website, www.pwc.com