The industry has copped plenty of criticism over flood cover and claims handling following the summer of disasters, and it has left insurers worried about a breakdown in the relationship between industry and consumers and governments.

The “Insurance Banana Skins” risk survey from the London-based Centre for the Study of Financial Innovation (CSFI) and PricewaterhouseCoopers (PWC) found the top risk for industry participants everywhere is regulation, but in East Asia and the Pacific many respondents are also concerned about reputational risk.

The report’s authors note the industry in Australia “sees its reputation very much on the line in the quality of its response to the disasters”.

The unnamed GM of an Australian reinsurance company says the “lack of clarity about exclusionary language, the lack of desire by insurers to pay claims as a result of flood/water damage and general procrastination in policy wording”, plus absence of an industry body with real power, will result in policyholders “continuing to view this industry as an unprofessional group without gravitas”.

“Confidence will continue to slide and the number of those who choose to self-insure will increase.”

Respondents also express concern about their ability to manage the regulatory load when market and claims pressures are so intense.

About 29% of respondents are non-life companies, 28% life, 7% reinsurance, 9% the London market and the remainder analysts, brokers, regulators and other interested parties. The survey was conducted over March and April.

The report notes that all areas of the industry see regulation as their biggest risk except the regulators. London-based firms in particular raise concerns about their ability to stay competitive globally because of regulation.

CSFI Director Andrew Hilton says Solvency II, a European Union move to introduce uniform solvency requirements across the EU, seems to have been written with the life industry in mind “no matter what the collateral damage to the general insurance industry.”

Although he is not surprised to see Solvency II named as a risk, he says insurers also describe many local regulations that are distracting management from running the business. 

The report says that proposed regulations are intended to improve insurers’ capital strength but the capital requirements are so onerous that they could hinder rather than help. 

Of the 490 companies surveyed, 57% come from Europe, 24% the Far East and Pacific, 10% from the Middle East and Asia and only 6% from the US and Bermuda, which the authors say reflects the amount of international insurance business conducted in London.

PWC Global Insurance Leader David Law says dealing with regulation “is clearly going to be a massive challenge over the next few years”.

However, he notes that insurance leaders in the latest survey of global CEOs are the most confident about their growth prospects of any of the financial services sectors.

“Companies that move the regulatory burden away from a box-ticking exercise to something that is embedded into their business and used to manage their changing risk profile more effectively will be in the best position to capitalise on the openings ahead.”

He urges leaders to use more effective communication to convey the true value and potential of insurance businesses to a sceptical market, saying it is a challenge that few companies have been able to crack. Mr Law says better communication will also encourage talented people to the industry.

A new entry to the list this year, at number six of 26 risks, is the difficulty of hiring and retaining talented people, with executives talking about a “war for talent” and the need to present insurance as an attractive career. A Belgian risk manager notes the industry is often seen as “boring and un-innovative”.

Australian and New Zealand firms are concerned about catastrophes and the likely impact on reinsurance, but some local respondents say catastrophe risk has been underpriced because of competition in the sector. This is enlarging the impact of claims and reducing the availability of reinsurance cover.

Some respondents believe it is possible that a reinsurer will fail and the Australians and New Zealanders expect the cost of reinsurance to rise in this part of the world. But reinsurers remain concerned at the effect of fierce competition and one European reinsurer sees prices continuing to fall.