Business practices tops insurance sector’s risks

‘Banana Skins’ poll pinpoints key concerns for insurers

Institutional risks such as business practices and quality of risk management are the top risks the Indian insurance industry currently faces. Growing concerns over “unethical sales practices” and a growing public distrust of insurers as a consequence of misselling – have driven reputational risk up to No. 7. Two more institutional risks – the quality of management and corporate governance –made to the top 10 in Insurance Banana Skins 2013, a biennial survey of insurance risks conducted by CSFI and PwC. 

On the question of how well Indian insurers are prepared to handle the risks identified, India scored at 2.73, below the global average of 2.95.

As in most of the world, the threat of overregulation is also a major concern particularly in the life insurance sector. Ranked notably higher in India than they were globally were the underwriting risks, particularly in natural catastrophes where there is a lack of understanding of probabilistic models and preparedness among Indian insurance firms.

Manoj K Kashyap, leader financial services, PwC India said, “Long driven focus on top line puts 'Quality of Management' and 'Business Practices' as two of the top five risk factors in India."Business Practices" has been a striking riser in the global survey from rank 18 to rank4 reflecting slippages in business standards during a hard market."

The survey this year revealed interesting findings. In India, over-regulation and under-writing risks are serious matters of discussion. On a happier note, the survey has had a healthier and more relevant mix of respondents comprising industry players as well as other constituents.

Lower-rated concerns included the risk around long-term liabilities and actuarial assumptions, which were seen by some respondents as quite conservative in India.

The global survey polled over 650 insurance practitioners and industry observers in 54 countries to find out where they saw the greatest risks over the next 2-3 years. This is the third successive Banana Skins global survey in four years which has identified regulation as the top risk concern for insurers globally, underlining the continuing uncertainty surrounding major regulatory initiatives.

From a global perspective a related set of risks lay in the area of business practices (No. 4), another area of regulatory scrutiny.  Despite the huge amount that has been done by companies and regulators to clean up practices such as mis-selling, this is still seen as an area of high risk particularly at a time of economic stress when pressure to generate sales is strong.

On the other hand, a number of risks have fallen in urgency, notably concern about the availability of capital to sustain the industry (down from No. 2 to No. 16 in global survey).  The situation is now reversed: there is excess capital in the industry, particularly on the non-life and reinsurance sides, which is keeping prices soft and hurting profitability.  Another receding risk, at least in developed markets, is human resources: the shake-out in the financial services sector has made it easier to recruit and keep good talent.  The situation is harder in emerging markets where qualified talent remains in short supply in many markets.

A breakdown of the insurance industry by sector shows the life side specifically concerned about the impact of low interest rates on investment performance, and the task of managing complex and competitive retail distribution networks. On the non-life side, the main concerns are with excess capacity and competitive pricing, along with the impact of surging catastrophe claims. Concerns in the reinsurance sector are mainly with the security of capacity in a highly competitive market.

Insurance Banana Skins 2013

Risk Ranking (India)

  1. Business practices
  2. Quality of risk management
  3. Regulation
  4. Natural catastrophes
  5. Quality of management
  6. Product development
  7. Reputation
  8. Innovation
  9. Investment performance
  10. Corporate governance
  11. Human resources
  12. Terrorism
  13. Macro-economic environment
  14. Guaranteed products
  15. Capital availability
  16. Distribution channels
  17. Crime
  18. Complex instruments
  19. Change management
  20. Reinsurance
  21. Actuarial assumptions
  22. Political interference
  23. Climate change
  24. Long tail liabilities
  25. Pollution/contamination
  26. Social media
  27. Back office

Notes to Editors:

1.  The Insurance Banana Skins survey was conducted in March and April 2013 and is based on 662 responses from 54 countries. The breakdown by type of respondent was:

Non-life 35
Life insurance 26
Reinsurance 7
Brokers 6
Observers 26

2.  The survey is the latest in the CSFI’s long-running Banana Skins series on financial risk.  Previous Insurance Banana Skins surveys were in 2007, 2009 and 2011.   It can be downloaded from the CSFI website: or from the PwC website:

About 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

PwC* helps organisations and individuals create the value they’re looking for. We’re a network of firms in 158 countries with more than 180,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at

PwC India refers to the network of firms, having offices in: Ahmedabad, Bangalore, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai and Pune. For more information about PwC India's service offerings, please visit

*PwC refers to PwC India and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details.

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