Insurers around the world have nominated regulation as the top risk for the industry, in a survey from the London-based Centre for the Study of Financial Innovation and PricewaterhouseCoopers (PWC).

The “Insurance Banana Skins 2011” risk survey of 490 respondents in 40 countries during March and April has found regulation is the key concern in every region, although natural catastrophes jumped the ladder from the last survey in 2009.

Respondents say the regulatory burden, particularly through the European Union’s Solvency II but also via local reforms, is distracting them from business and imposing heavy costs.

PWC Global Insurance Leader David Law says although most insurers came through the financial crisis largely unscathed, dealing with regulation is clearly going to be a massive challenge over the next few years.

“Most of all, insurers will need to make sure that the current wave of regulatory change does not distract them from the opportunities ahead,” he said.

“An ageing population and a changing pattern of risk – the recent spate of catastrophes is an unfortunate but telling example of this – give insurers a reason to be optimistic about future profitable growth.”

Life insurers are concerned about their ability to handle all the changes in regulations, difficult investment markets with low interest rates, and reputational risk.

General insurers see risks from the surge in disaster claims and report few signs of recovery in the soft market. Some of the 21 Australian and 15 New Zealand respondents in the survey name damage to reputation as a key risk, saying difficulties with flood claims and a poor response to catastrophes have damaged the industry’s relationship with governments and policyholders.

Natural catastrophes leaped to number five from 22 on the list of major concerns globally. Respondents in Australia and New Zealand expect the cost of reinsurance to rise but reinsurers, who comprise 7% of respondents, remain concerned about competition and “cut-throat pricing”, the report says.

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