Although Britain’s withdrawal from the EU is still two years away, insurance firms have already started planning for post-Brexit hubs. However, the withdrawal seems to be the least of the industry’s concerns, according to a recent report published by the Centre for the Study of Financial Innovation (CSFI) and PricewaterhouseCoopers (PwC).
In the “Insurance Banana Skins 2017” report, insurance practitioners and industry observers ranked Brexit last in a list of the 22 “greatest risks” faced by the industry over the next two to three years.
The top five were:
- Change Management
- Cyber Risk
- Technology
- Interest Rates
- Investment Performance
Results were based on 836 responses from practitioners, regulators and observers of the insurance industry in 52 countries.
The report said that Change Management’s top spot reflects concern, “even doubt,” about the industry’s ability to address the formidable agenda of digitisation, new competition, consolidation, and cost reduction.
“Rapidly evolving markets, rising customer expectations, and new distribution channels threaten traditional insurance business models, while incumbents held back by legacy systems and traditional modes of thinking struggle to innovate in an unfamiliar environment,” it said.
Cyber risk “narrowly missed” the top ranking, as the report said anxiety has risen sharply this year from an already high level.
“A large number of respondents warned that major attacks on insurers were inevitable, and many added that their impact could be catastrophic,” it noted. “One respondent pointed out that ‘a more interconnected world means there is more exposure.’”
Respondents believed that the use of outdated technologies has also given insurers a stale and unfriendly image. “Part of the awkward way in which we engage with our emerging customer base is because we continue to use legacy technologies that do not engage effectively with the changing trends,” said the senior vice president of a life insurance company in the US.
“This leads to perception issues (and often more than just perceptions) and a lack of interest in the public to conduct business with insurance companies.” The report did not name the executive.
According to the study, any risks to the global insurance market from Britain’s decision to leave the EU are of “small order.” Even in the UK, the issue placed 12
th. The only country where it was seen as a major risk was Ireland which ranked it number seven because of the additional costs involved in maintaining access to the UK market.
“Brexit has been well signalled and should cause only minimal disruption to business, most of which is domestically oriented,” the report outlined. “It was clear from respondents’ comments that countries outside Europe and North America had given it little thought.”
Alan Punter, visiting professor at London’s Cass Business School, said that harm to the international market may be small, but harm to the UK’s position in the international market is substantial – “as we see UK-based carriers move operations and open subsidiaries in the EU to re-instate passporting rights.”
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