Insurance sector's biggest risk is its business practice: Survey

India scores below global average in ability to handle risks

Business practices of companies are the biggest risk faced by the Indian insurance industry, says a survey by the  the Insurance Banana Skins 2013, a biennial survey of insurance risks conducted by non-profit think tank Centre for the Study of Financial Innovation and PwC.

The survey says institutional risks such as regulation and quality of risk management are among the top risks the domestic insurance industry currently faces.

In terms of the preparedness of Indian insurers to handle the risks identified, India scored at 2.73, below the global average of 2.95. The survey said that growing concerns over “unethical sales practices” and a growing public distrust of insurers as a consequence of misselling, have driven reputational risk up to number seven in the list of top 10 risks. The other institutional risks include natural catastrophes, quality of management, product development, investment performance, corporate governance and innovation.

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 rank 4, reflecting slippages in business standards during a hard market.”

With respect to business practices, in India, an insurance industry consultant said the greatest risk to the industry lay in banks which became agents and were dictating their insurance subsidiaries to create policies and thrust them on unwary customers at exorbitant rates. The insurance regulator has allowed banks to become brokers.

Globally, regulation followed by investment performance and macroeconomic environment were the top-most risks for the insurance sector. While on one hand, the survey said that over-regulation and under-writing risks are serious matters of discussion in India, lower-rated concerns included the risk around long-term liabilities and actuarial assumptions.

Respondents from India cited over regulation as a concern. “Regulatory oversight is fine, but regulatory over-indulgence might spell doom for the industry,” a response read. Another big area of worry was the macroeconomic condition, where Indian respondents said that this was a big risk given the current conditions.

The Insurance Banana Skins survey was conducted in March and April 2013 and is based on 662 responses from 54 countries. Insurance Banana Skins 2013 surveys the risks facing the insurance industry at a time of considerable market uncertainty, and identifies those that appear most urgent to insurance practitioners and close observers of the insurance scene around the world.