Falling interest rates is the biggest concern for life insurance firms globally, says a recent PwC and Centre for the Study of Financial Innovation (CFSI) report titled ‘Insurance Banana Skins 2017’.
Close to 836 insurance practitioners and industry observers from 52 countries across the globe participated in this survey. The report identified various risks concerning the life insurers globally.
The report says that globally life insurers believe that low interest rates are affecting the industry overall by depressing investment returns and, ultimately, company profitability, creating a generally riskier environment.
“The constraints that low rates impose on insurers are also a concern: savings products are harder to design and sell, they have become more expensive, and their greater riskiness demands more capital,” the report highlighted. Geographically, concern about the risks associated with interest rates was the highest in the euro zone because of insurers’ heavy exposure to interest rate markets.
Another major concern cited by majority of the life insurers was their ability to adapt to the emerging technological and structural changes. Commenting on this, the report stated, “Rapidly evolving markets, rising customer expectations, and new distribution channels threaten traditional insurance business models, while incumbents held back by legacy systems and traditional modes of thinking struggle to innovate in an unfamiliar environment.”
Cyber risks are also a fast growing concern for most of the life insurance firms who manage a lot of confidential data and large amount of capital funds on their systems at one time.
The survey also revealed the insurers concerns related to investment performance and macro-economic risk.
Cafemutual sought the views of a few life insurers in the country. Most of them believe, agent attrition that has been an ongoing issue in the life insurance industry is a major concern. Also, the emerging technological trends in the insurance industry poses a threat for most life insurers.
Highlighting the major concerns for life insurers in India, Pankaj Razdan, MD & CEO, Birla Sun Life Insurance (BSLI) said, “The reduction in interest rates has always been a cause of concern for life insurers. The fluctuation in the interest rate causes re-pricing of existing products and launching of new products with lower guaranteed returns which in turn decreases the premium and increases the expense cost. Another major concern is the rise of cyber threats in the industry. Enormous confidential data of policy holders is at risk.”