Island insurers see regulation as top threat

Regulation poses the greatest threat to the global insurance industry due to the volume of change and associated cost, according to Bermudian-based respondents to a survey of industry professionals.

One survey respondent said that regulation is “strangling of our ability to operate effectively across jurisdictions and leverage our capital. [This] is a huge and expensive problem”.

The Insurance Banana Skins global report, issued biennially since 2007, is published by the Centre for the Study of Financial Innovation in association with professional services firm PwC.

This year’s analysis is based on 927 responses from 53 territories, including 32 Bermuda respondents. Fourteen were from the reinsurance sector, while there were nine non-life respondents, two life respondents, and one composite respondent. Six respondents identified themselves as ‘other’.

While Bermudian-based respondents ranked regulation as the greatest threat, the world ranking for regulation was fourth. Technology, meanwhile, was ranked as the number one threat by respondents globally, while Bermudian-based respondents had technology at number five on their list.

Bermuda also gave a higher score to political risk (sixth v eleventh in global ranking). That, the survey organisations said, was “because of the island’s vulnerability to political actions in the United States (tax), the European Union (blacklisting) and the United Kingdom (Brexit)”.

Climate change was another higher-than-average scorer among Bermudian-based respondents, perhaps due to the proportionally high number of respondents from the reinsurance industry as that sector bears the brunt of catastrophic events.

What follows is a selection of quotes by Bermudian-based respondents to the survey:

Capital availability: “Surplus capital will continue to erode margins and result in adverse economics in the short to medium term.”

Climate change: “[Concern about] the ability of the industry to deal with the liability, physical and transitional risks associated with a changing climate.”

Investment performance: “Recessionary event in the US combined with continued political upheaval globally [will combine] to produce weak investment returns.”

Social change: “Social demands will continue to put pressure on the industry, but not in isolation from governmental interactions and policies.”

Change management: “Lloyd’s failure to innovate and the advancing march of Chinese capital [will] shift the marketplace.”

Bermuda produced the second-lowest score on the Banana Skins Index, implying a low level of risk anxiety. The index measures the average score given by each of the 32 countries with ten or more respondents to the 21 risks, or “banana skins”, listed in the questionnaire. The higher the score, the greater is the implied “anxiety level”.

The top three scores were posted by Turkey (3.64), Malaysia (3.59) and the Philippines (3.55). Bermuda (3.19) was more anxious than only Denmark (3.15). The global score was 3.33.

Meanwhile, Bermuda produced an above average score on the Preparedness Index, implying a high level of preparedness. The index measures the average response given to the question: “How well-prepared do you think the insurance industry is to handle the risks you identified?” The continuum runs from “poorly” to “well”. The higher the score, the greater is the implied level of preparedness.

Bermuda was ninth of 32 countries on the preparedness index at 3.28, behind only Spain (3.47), South Africa (3.46), Switzerland (3.40), Turkey (3.35), Portugal and South Korea (3.33), Germany (3.31) and Malaysia (3.29). The global score was 3.11.

The Bermuda rankings, with the corresponding ranking globally in brackets: 1, Regulation (4); 2, Cyber-risk (2); 3, Climate change (6); 4, Change management (3); 5, Technology (1); 6, Political risk (11); 7, Human talent (8); 8, Macro-economy (9); 9, Competition (7); 10, Cost reduction (12); 11, Investment performance (5); 12, Quality of management (16); 13, Reputation (13); 14, Social change (18); 15, Capital availability (20); 16, Brexit (21); 17, Guaranteed products (14); 18, Corporate governance (19); 19, Business practices (15); 20, Interest rates (10); 21, Credit risk (17).

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Published Jul 1, 2019 at 8:00 am (Updated Jul 1, 2019 at 12:04 am)

Island insurers see regulation as top threat

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