Their entry is indicative of how high a concern they have become for the industry when looked at in conjunction with regulatory developments and the broader macro-economy. Cyber risk was ranked as the number one concern by insurers in South Africa, the UK, and North America. Cyber risk ranked fourth on the combined global survey.
Regulatory risk emerged as the overall global top risk for participants in the survey for the third successive time, underlining the deep impact regulatory change is having. It has been the top risk in four of the five surveys since 2007.
The main concerns are that new rules governing solvency and market conduct could swamp the industry with costs and compliance problems. They could also distract management from the task of running healthy businesses at a time when the industry also faces radical structural change.
The EU's Solvency II Directive, to be introduced next year, was the focus of strongest concern. Other countries around the globe, including South Africa, are also introducing similar measures modelled on Solvency II. South Africa has adopted a 'Twin Peaks' model to regulate the solvency and market conduct requirements of insurers, which will also be implemented from 2016.
Its Solvency and Assessment Management rules, modelled on the Solvency II directive, will regulate the solvency requirements of insurers on a risk based approach. At the same time, it has adopted the treating customers fairly rules to regulate the market conduct of all financial institutions, including insurers.
While the beneficial impact of tighter regulation was acknowledged, the survey responses showed that regulation was also widely seen as excessive and overbearing.
"The long-term growth prospects for insurers on the continent are very positive, as more African economies in general are growing, and more people start to accumulate more wealth to protect. Rapid migration into cities and increasing infrastructure spending by African governments are also contributing to the growth in insurable assets and lives," Victor Muguto, head of long-term insurance at PwC Africa, says.
"Given that insurance penetration rates are also relatively low compared to the rest of the world, the prospects are encouraging. And yet African insurers also face the disruptive impacts of rapidly changing technologies, evolving customer behaviours and expectations and volatile markets added to the increasing regulatory burden. Those insurers who are able to identify and manage these emerging as well as other familiar risks while keeping up with the changing regulatory landscape will differentiate themselves from their competitors."
The second cluster of emerging concerns was around macro-economic risks. Respondents were cautious about the outlook for growth, as well as for interest rates, whose persistent low levels since the financial crisis have depressed investment yields and made savings products more difficult to manage and sell. It was surprising to note that interest rates were seen as less of a concern in South Africa and only ranked 23 compared to three on the global rankings.
The third cluster of emerging risks was in the area of industry change, particularly the impact of new technology on security, product delivery and data management. Cyber risk emerged on top of the list for the first time since the survey was initiated in 2007, and was ranked high at number four globally, and number one for non-life insurance, reflecting rapidly growing concerns about cyber crime and data security.
