Insurers rate regulation as biggest risk

WORRIES over the burden of new regulation on insurance companies have soared in the past year, pushing it to the top of a list of insurance industry risks published today.

Insurers believe regulation is now a bigger threat than meeting tough new capital requirements or the risk of stagflation in the world economy, the Centre for the Study of Financial Innovation/PwC survey shows.

And though catastrophe losses have already hit record levels this year and caused reinsurers to abandon full-year profit forecasts, insurers view natural disasters as only the fifth-largest risk to their businesses.

The unprecedented industry concern at the cost and complexity of regulation such as Solvency II and the UK Retail Distribution Review follows an escalating level of industry opposition to the changes in the past year.

Insurers are concerned that too many large and costly regulatory regimes are being brought in at once.

“The fear is that these initiatives will load the industry with heavy costs, and distract management from the task of running profitable businesses,” the report said.

Regulation was placed fifth in the 2010 survey, behind threats such as capital requirements, investment performance and the wider economy. Natural catastrophes were ranked 22 in the 2010 ranking after an unusually disaster-free year.

New to the 2011 ranking was a battle for talent, as despite high UK unemployment insurers struggled to fill positions. Political risk and corporate governance also each moved nine places up the rank.

TOP FIVE RISKS ACCORDING TO UK INSURERS (2010 RANKING IN BRACKETS)
1 REGULATION (5)

2 CAPITAL (3)

3 MACRO-ECONOMIC TRENDS (4)

4 INVESTMENT PERFORMANCE (1)

5 NATURAL CATASTROPHES (22)

SOURCE: STUDY OF FINANCIAL INNOVATION/PWC