Top 10 risks according to Luxembourg and global insurers are revealed

The ‘Insurance Banana Skins 2015’ survey is available on PwC Luxembourg website.http://www.pwc.lu/en/insurance/insurance-banana-skins-2015.jhtml

We are proud to present the results from our biennial survey: Insurance Banana Skins, which examines risks facing the insurance industry and identifies those that appear most urgent to insurance practitioners and close observers of the insurance scene around the world. The survey was conducted between March and April 2015, and is based on 806 responses from 54 countries, including 19 in Luxembourg.

Please do not hesitate to contact us for deeper cuts and interpreration on Luxembourg responses.

Global Highlights

1. Regulation tops the list of external risks for the third consecutive edition of the survey.
2. Respondents noted that the industry is better prepared than previous years to manage risks.
3. One of the most striking issues insurers are worried is about the cyber risk, specifically software failure and data security.

Top global risks (see Luxembourg specific ranking further below)

1. Regulation (maintains its 2011 and 2013 position as the number one risk).
2. Macro-economy (from 3rd position in 2013).
3. Interest rates (rank for the first time).
4. Cyber risk (rank for the first time).
5. Investment performance (from 2nd position in 2013).

Charting the top risks in the global insurance sector highlighted that the persistence of low interest rates and investment performance, the macro-economic uncertainty combined with increasing regulation and changing tax requirements are a concern for the insurers in Luxembourg.

Although the sector is performing strongly in Luxembourg the persistence of low interest rates emerged as the overall top concern. Luxembourg respondents remain cautious about the outlook for growth as low interest rates have depressed investment yields and made savings products more difficult to manage and sell, reducing their attractiveness and/or increase the cost of providing these products. 

Typical responses from insurance companies included: “Guaranteed products will start being a real issue for the vast majority of insurance companies.” Given the current market conditions, with high competition, low margins, low interest rates and increasing regulatory constraints, companies have to innovate and adapt. They need to offer attractive new products as policyholders are sensitive to a transparent value proposition, security and return. These companies are actively considering alternative investments to meet their product commitments. Alternatively, they are offering less guaranteed structured products or developing new ones without guarantees. 

Matt Moran, partner and Insurance Leader at PwC Luxembourg, commented: 

“All players of the Luxembourg insurance sector should adapt how they market their products, by offering new solutions and different distribution channels. This needs the active collaboration of the authorities and industry associations, who will be critical to promoting the benefits of Luxembourg’s innovative solutions and their ability to meet future policyholders’ needs.” 

There was however a common feeling, that the Luxembourg insurance sector, in particular with respect to investment and savings products, needs to continue to reinvent itself to bring more value to the planning value chain. A further challenge is to address changing consumer needs and life styles. Companies should embrace E-Distribution and develop relationships with new partners, therefore communicating differently with policyholders using current technology. 

The continuously increasing regulatory requirements at a European level (e.g. Solvency II, PRIPS and MIFID) and at a country level (e.g. country premium taxes and tax representative requirements) also threaten practitioners. These are proving challenging for insurance and reinsurance companies where the costs of implementation eat into margins in an already competitive cross-border market. Some regulations, including EU distribution rules and elements of policyholder protection requirements provide barriers to international cross-border business. 

Notable differences between the Luxembourg and the global responses included political interference, guaranteed products, Market conditions as higher concerns while human talent, reputation and change management being lower. 

About the CSFI

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. 

About PwC

1. PwC Luxembourg (www.pwc.lu) is the largest professional services firm in Luxembourg with 2,450 people employed from 55 different countries. It provides audit, tax and advisory services including management consulting, transaction, financing and regulatory advice to a wide variety of clients from local and middle market entrepreneurs to large multinational companies operating from Luxembourg and the Greater Region. It helps its clients create the value they are looking for by giving comfort to the capital markets and providing advice through an industry focused approach. 
2. The global PwC network is the largest provider of professional services in audit, tax and advisory. We’re a network of independent firms in 157 countries and employ more than 195,000 people. Tell us what matters to you and find out more by visiting us at pwc.com and www.pwc.lu.