Low interest rates were once again highlighted as the principle source of concern for the industry according to a new survey carried out by the Centre for the Study of Financial Innovation (CSFI).
The “Insurance Banana Skins 2017” survey, charting the top risks in the insurance sector, highlighted that the persistence of low interest rates, guaranteed products, and investment performance, combined with the industry’s ability to deal with structural and technological changes, are a concern for insurers in Luxembourg.
Conducted in association with PwC, the authors polled over 800 insurance practitioners and industry observers in 52 countries including 19 in Luxembourg, to find out where they see the greatest risks over the next two or three years.
It found that, although the industry is performing strongly in Luxembourg, the response from Luxembourg sector was dominated, again, by concerns over the low level of interest rates, and its associated effect on investment returns, solvency and products with guaranteed rates of return.
Concern about the quality of management in insurance companies, and its ability to cope with the pressures facing the industry from new technology and new forms of competition was also higher than the global average. As elsewhere, many respondents mentioned excessive regulation as a top concern, with one respondent describing it as being written “by academics and civil servants”.
The authors say the report also raises concerns about the industry’s ability to confront digitisation, with change management and technology jumping high in the top of rankings. In contrast to other countries, cyber threats were not placed as one of the highest risks. Also, there was relatively less focus on the outlook for the macro-economy.
Another challenge was found in the need to address changing consumer needs and life styles.
Matt Moran, partner and Insurance Leader at PwC Luxembourg, emphasised the changing consumer landscape.
“Insurance faces broader challenges, particularly changing customer behaviour. Customers are increasingly demanding simplicity, transparency and speed in their transactions with insurance agents/advisers. The relentless march of online and mobile technology is continuing to fuel this change in customer expectations.
"As far as regulation is concerned, insurers will have to comply with new regulations coming into effect in 2018, including the Insurance Distribution Directive (IDD), which aims at putting greater consumer protection, accountability and transparency in financial services. We expect to see players adapting to these new market realities and make the most of the rising opportunities.”
The ‘Insurance Banana Skins 2017’ survey is available on PwC Luxembourg website.
