Rapidly changing regulations are putting the insurance industry under significant pressure, which is resulting in fewer products – particularly guaranteed products – and higher prices, industry executives said on Monday.
At the 2012 Advocis Regulatory Affairs Symposium in Toronto, panelists highlighted various challenges currently facing industry players, including a growing regulatory burden, higher capital requirements, new accounting standards and low interest rates.
“It’s a very, very challenging time for companies to be operating and handling products,” said Anne Butler, senior vice president, general counsel and corporate secretary at Kingston, Ont.-based Empire Life Insurance Co.
In particular, Butler said it’s been a struggle for insurers to keep up and comply with the range of new regulations. She pointed out that in addition to domestic regulations, Canadian insurers are facing a growing number of regulatory standards that are being set at the international level.
“There’s been a lot of change in the marketplace. That is driven by, not just our passionate local regulators, but by international standards that are coming into Canada,” Butler said. “Regulatory issues have become a huge concern for us as executive teams.”
Steve Krupicz, assistant vice president of special case markets in the Canadian division of Manulife Financial Corp., agreed that the recent wave of regulatory change has been drastic.
“This pace of change has been unprecedented,” Krupicz said. “It’s put huge pressure on insurance companies, inside the head offices, in terms of reacting to what’s been happening in the regulatory world and the accounting world, and in the economic environment, in terms of low interest rates.”
The regulatory changes are having a considerable impact on the product landscape, the panelists said. Joanne Abram, CEO of Alberta Insurance Council, said that’s occasionally an unintended consequence of new industry rules.
“Unfortunately, [regulation] is highly reactive, rather than proactive, and it doesn’t necessarily result in a better system. At times, that reactive approach will have other unintended consequences that weren’t considered in the rush to enact the regulation,” Abram said. “One of those unintended consequences can be a less competitive business climate, or in some cases, businesses deciding to get out of certain areas, or carry fewer products.”
Indeed, Krupicz said the combination of new regulatory requirements and low interest rates has forced Manulife to revamp its product lineup.
“It’s caused us, as a manufacturer of product, to rapidly change our products, in terms of repricing the products that are out there, raising the cost of insurance on our guaranteed products, weakening the guarantees that are there, and withdrawing products,” he said.
This contraction of the product shelf is occurring across the industry, the panelists said. They consider it a worrisome trend, since it leaves consumers with fewer options.
However, Krupicz said that as product manufacturers adapt to the new environment, they will develop innovative new products to meet clients’ needs. In particular, he expects to see more insurance products that are designed to cater to a narrow target market.
“I think the direction you’re going to see is more and more nuanced products that are not as complex as what we’ve provided before,” Krupicz said. He explained that products with multiple features widespread appeal carry many risks for insurers. “In order to control the risk… it’s easier as a manufacturer if I have a smaller set of risks that I have to manage within each of those products.”