Every two years the insurance industry can look forward to a brilliant publication being produced which has one of the best, if not the best, titles of any surveys produced in the financial services sector.
I’m talking about the “Insurance Banana Skins” report, the latest of which for 2015 has just been published.
This is produced by the Centre for the Study of Financial Innovation, and sponsored by PricewaterhouseCoopers. If you really want to go deep into this, you’ll also find copies of the 2011 and 2013 reports by clicking on the link above.
More than just a title
What makes this report so great? Well, it’s not just the brilliant title. It’s the fact that this is a very big international survey of insurance practitioners. But it doesn’t just look at where the key risks actually are – it looks at what the respondents believe are the biggest risks for their businesses. In other words, what’s at the top of their “worry lists”.
But when I read this, the first thing that sprung to mind was how training (including attendance at training events) can be a key component of plans to mitigate these risks, and effectively make the banana skins less slippery.
We won’t have time to go through the entire report in this short blog post, but we can certainly pick out some of the highlights.
So, what do you think we’ll find right at the top of the list? Take a wild guess.
Regulation, regulation, regulation
Yes, you’ve guessed it, Regulation. Or to be specific, it’s the quantity of reforms that have been taking place.
Although this is a worldwide survey, to a certain extent this result may be influenced by the sheer number of European respondents – 51% to be exact. And the UK on its own makes up 74 responses out of a total of 806. So it’s no wonder that the weight of change (including in particular Solvency II) is influencing the result.
Hardly surprising as the pace of change is particularly frenetic at the moment. Take a look here for just a taste of how things are at the moment. And if that’s not bad enough, individual jurisdictions are having to manage change coming directly from Europe as well as from their host regulators.
And here’s a surprise. This isn’t the first time that Regulation has been the “top banana”. Look back at the previous surveys and what has been at number one?
2007 – Too much regulation
2009 – Investment Performance
2011 – Regulation
2013 – Regulation
Noticing a pattern here? This is a problem that’s been around for a while and is not showing any signs of going away. In 2009 it was beaten by Investment Performance, Equity Markets, Capital Availability and Macro-Economic Trends; presumably because the world was in the grip of the credit crisis at the time. But when that started to settle down, what reclaimed the top spot? That’s right – Regulation.
A new entry at number 4
The other standout item from this year’s report is the new risk that’s stunningly shot in at number 4, having not featured in previous surveys, and that’s Cyber-risk.
Hardly surprising really, given recent advances in technology, and the associated risk of crime that’s gone with them. This suggests that the risk is now being perceived by the industry as being substantial, and firms are in the relatively early stages of getting to grips with it.
The specific risk seem to be around software failings and the risk of data security being compromised or breached. There’s also another concern which is the increasing amounts of data that insurers are holding in cloud-based applications. The latter are seen as particularly vulnerable to being hacked into and harvested for personal data (both personal and financial) relating to individuals which can then be used to commit other crimes such as fraud and identity theft.
The other concern is that cyber-criminals will always be one step ahead of the insurers in terms of understanding the technology they use. In fact, the respondents all seem resigned to the fact that they either will be hacked or will suffer hacking attempts.
And another big move
Is change management, which has jumped from number 15 last time to number six this time. This is focused mainly on the speed at which insurers can respond to the need for change, driven by technological advances. But you could also argue that regulatory change drives this risk too. A lot of this requires change management. Just look at the size of the projects that have had to be put in place to deliver Solvency II for instance.
The key point here is that whilst insurers can manage projects, the pressure is now coming from deadlines, and the need to respond quickly to gain or maintain market advantage. So this is partly a regulatory risk and partly an opportunity risk.
Training – how to move the skins
Granted, training on its own isn’t going to be enough to mitigate these risks and reduce the level of concern within firms. But it could go long way towards giving insurers more comfort that they can at least keep these risks under control.
Take regulation for instance. The starting point for this is knowing what regulatory change means for your specific firm. This requires a degree of knowledge, understanding and insight, and one of the best ways of achieving this is through attendance at events such as conferences and seminars.
Once regulatory change has been identified and understood, then programmes of change may need to be put into place. The skills needed to manage and participate in such change programmes (particularly from a controls perspective) can be acquired through training programmes and qualifications, which you can search for depending on your sector.
Lastly, cyber-crime is a quickly developing issue and the need to keep up with the latest trends and developments can be partially met by searching by subject type for the latest training offerings.
So mind how you go, and watch out for those banana skins!!
By Martyn Oughton a Professional Member of the International Compliance Association (ICA). Martyn now writes a regular blog for Industry Events Online focusing on the importance of training in all aspects of compliance. Read Martyn's other publications at Martyn's Writers' Residence website.
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