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Natural disasters continue to threaten insurers

Like most New Zealanders, the threat of natural disasters and more earthquakes are on the minds of our nation’s insurers, closely followed by reputational risk, and strategic and operational priorities.

The Christchurch earthquakes devastated more than a city and community.

They continue to test the insurance industry and affect all New Zealanders from an insurance perspective.

Insurers and specialists are now more acutely aware of New Zealand risk exposures and are concerned that future catastrophic events will have a profound impact on New Zealand, especially in heavily populated and insured areas.

The Wellington shakes that occurred on August 16, 2013 provide a sober reminder.

Reputational risk

Based on the findings of Insurance Banana Skins 2013 Survey conducted by PricewaterhouseCoopers New Zealand, the threat of brand damage was a top concern of the nation’s insurers.

Reputational risk is real and flows from the extended time it has taken to settle a number of claims in Christchurch. New Zealand’s insurance industry continues to face an unprecedented situation, and is well aware of the public feeling and mood.

Rounding out New Zealand’s top-five perceived risks is the industry’s slow adoption to new ways of selling their insurance products, a concern around the lack of innovation, and how to attract and retain the best people.

One respondent told us that there were ‘too many operational issues to focus on to really seriously innovate’.

Innovation needed

Understandably, the industry’s resources have been focused on dealing with top operational priorities, increasing the risk that nice to haves fall by the wayside.

Yet, insurers recognise that they must continue innovating to improve their products and business practices. The ability to innovate comes down to having the right resources, diversity of thought, and getting and keeping good people.

The Survey found a marked difference between global concerns and our local industry’s reality.

Global concerns

New Zealand insurers agree with just three of the top-10 risks ranked by their global counterparts. Yet, it is important that the nation’s insurers stay mindful of global concerns.

Regulatory risk emerged as a clear leader in many major markets, but was ranked number 12 in New Zealand.

Global insurers are worried that rules governing issues such as solvency and market conduct could swamp the industry with costs and compliance problems.

Why are New Zealand’s insurers optimistic about their preparedness in this area?

One thought is that New Zealand is still in a state of infancy in terms of adopting insurance regulation, and it is very early days in terms of our industry being actively regulated.

That is not to say the threat of more intense regulation could not increase, especially if more resources and focus is applied by the New Zealand Government.

As we face a future where we will need to rely on global insurers to provide the cover that we need, the same global concerns will impact us in New Zealand.

David Lamb is Partner and Insurance Sector Specialist at PricewaterhouseCoopers based in Auckland.

Banana Skins Survey

Top Five Risks in 2013 (Global)

(2011 ranking in brackets)

1. Regulation (1)

2. Investment performance (4)

3. Macro-economic environment (3)

4. Business practices (18)

5. Natural catastrophes (5)

Top Five Risks 2013 (New Zealand)

(2011 ranking in brackets)

1. Natural catastrophes (3)

2. Reputation (9)

3. Distribution channels (5)

4. Innovation (-)

5. Human resources (7)

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