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Downturn impact top risk for insurers

By Zhang Ran (China Daily)
Updated: 2009-08-05 07:51

The impact of the financial crisis is the most significant risk facing most of the overseas insurance companies, according to a new report released by Ernst & Young (E&Y), which highlighted the top 10 business risks faced by insurers in 2009 as ranked by more than 100 leading sector analysts.

Model risk and regulatory intervention risks rank second and third in the list, respectively.

Chinese companies, however, should pay special attention to risks like channel distribution, climate change and catastrophic events, and also manage the non-life underwriting cycle, according to the accounting firm.

"As Chinese insurers are operating in an environment quite distinct from the overseas market, they are poised for higher growth than their overseas counterparts. Therefore, it is important for them to focus on and manage those risks carefully in order to optimize growth and profitability," said Freddie Chui, E&Y partner for financial services industry.

The accounting firm suggested that Chinese insurers should hold up underwriting principles, reduce expenditure and enhance brand management by utilizing process automation.

To address climate change and catastrophic management, local insurers should develop models proactively including data collection and catastrophic risks and re-examine the costs resulting from catastrophic risks.

For channel management, they should drill down into related data and focus on risks with losses due to inappropriate sales, it said.

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As a result of the current economic conditions, there have been significant changes in the risks since the release of E&Y 2008 report. The E&Y 2008 report highlighted climate change, demographic shifts in the core market and catastrophic events as the top three risks threatening insurers.

The report in 2009 warned that though much of the downside risk may have already occurred, the current global market turbulence still poses certain degree of threat to global insurers.

"The reshuffle of the industry triggered by the financial crisis is far from over," warned Barry Man, E&Y partner with global financial services.