The regulatory environment, cyber risk and low interest rates represent the top three concerns for Canada’s insurance industry, according to the results of a risk survey conducted by the London, U.K.-based Centre for the Study of Financial Innovation in association with PricewaterhouseCoopers LLP (PwC).
Although regulatory risk is the top concern for Canadian insurers for the third successive edition of the Banana Skins Index, which polls global insurance practitioners and industry observers to determine what they see as the greatest risks over the next two to three years, this is the first time that cyber risk and interest rates have been classified within the top three rankings.
“Canadian insurance companies are some of the biggest international operators. It is no surprise that, given the scale of their operations and rich data holdings, cyber security emerged this year as a top concern, leaving many players in the sector believing that a data breach is not a matter of if but when,” says Chris Couture, national insurance leader for PwC’s Canadian division, in a statement. “Between more regulatory scrutiny around data security and greater demand for online services in an often strained and antiquated IT environment, there is no doubt that this will remain at the forefront as a driver of change within the industry.”
Regarding the anxiety surrounding interest rates, the research indicates that while insurers have been able to make adjustments accounting for low interest rates, a greater focus is placed on product and pricing changes as rates remain low, often at the cost of product innovation.
Nevertheless, it’s not only Canadian insurers that consider regulation to be the biggest risk they face as it also claimed the top spot among insurers around the world.
“While the beneficial impact of tighter regulation was acknowledged, the survey responses showed regulation is also widely seen as excessive and overbearing,” the research states.
Concerns about the macroeconomic risk placed second, globally, with respondents being cautious about the outlook for growth, and low interest rates ranked third.
Cyber risk makes its first appearance on the survey, which began in 2007, and ranks fourth in the list of issues that insurers throughout the world worry about. When considering insurers that provide non-life insurance products, it actually takes the top spot.
The research notes that several risks have also receded in importance, globally, such as the quality of management and corporate governance in insurance companies, issues that were ranked among the highest concerns in previous editions of the survey. The issue of reputation risk is also less of a concern as insurers have become more proactive in public relations, although the growing popularity of social media is seen as a threat to reputation management.
The survey polled more than 800 insurance practitioners and industry observers in 54 countries. It is conducted every two years, with previous studies occurring in 2007, 2009, 2011 and 2013.