Insurers Under Stress

Survey reveals that most insurance companies are worried about several different regulations, and about the interrelation of those rules.

Like other financial services businesses, many insurance companies are feeling weighted down by new and impending regulations. So say the more than 300 respondents to a survey conducted by the Economist Intelligence Unit (EIU) and sponsored by State Street. The EIU polled senior insurance executives from around the world about the state of the insurance market.

Insurers are concerned about compliance with a wide range of regulations. Key among them are the EU’s Solvency II directive, which is a concern for 91 percent of companies operating in Europe, and the U.S. Foreign Account Tax Compliance Act (FATCA), which is a concern for 88 percent of them. Among insurance companies with operations in North America, 91 percent are worried about the increased regulatory oversight that might result from being designated a "systemically important financial institution," 85 percent are concerned about the shifting standards of the National Association of Insurance Commissioners, and 81 percent worry about the potential for new oversight from the Consumer Financial Protection Bureau. (See Figure 1, below.)

Areas of ambiguity and conflicts between these regulations are further confusing compliance issues. Only 39 percent of respondents to the State Street/EIU survey expect to see global convergence on issues such as how to calculate capital requirements. “As the regulatory environment for insurers evolves, the impact of change on risk is a major concern,” says Tom Forrester, senior vice president and managing director at State Street. In fact, 29 percent of all respondents to the survey reported that their company has divested lines of business since the financial crisis as a direct result of new capital requirements or risk management considerations. In the EMEA region, that number is 39 percent. “Insurers and risk managers need to continue to evaluate how their firms are operating within this environment and evaluate if they need to change operating models,” Forrester adds.

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