A report by PriceWaterHouse Coppers (PwC) that chart the top risks in the global insurance sector and the growth concerns of insurance CEOs shows that cyber risk, interest rates and growing tax burden are now among the top risks for insurers.
This is indicative of how high a concern these issues have become for the industry when looked at in conjunction with regulatory developments and the broader macro-economy.
One of the reports, Insurance Banana Skins 2015, a global study conducted by CSFI (Centre for the Study of Financial Innovation) in conjunction with PwC polled over 800 insurance practitioners and industry observers in 54 countries including Nigeria, to find out where they saw the greatest risks over the next 2-3 years. Regulatory risk emerged as the overall top risk for participants in the survey for the third successive time, underlining the deep impact regulatory change is having.
The report says that new rules governing solvency and market conduct could swamp the industry with costs and compliance problems. It could also distract management from the task of running healthy businesses at a time when the industry faces radical structural change.
Similarly, the second report ‘Insurance 2020: Equipping your business for the global tax revolution noted that the reputation and well-being of companies, including insurance groups, is not just being impacted by governments, taxpayers and other stakeholders but also by external perceptions of how they manage their tax affairs.
Patrick Obianwa, PwC Nigeria Financial Services Leader, commented: “The insurance industry faces enormous challenges in the growth of regulation, a difficult operating environment, increased taxation and the looming threat of structural change. This is reflected in the negative sentiment behind these survey results. Given the current speed of regulatory, technological and social change, the challenge for the insurance industry globally is less about what is already happening, and more about how to anticipate what further changes could happen between now and 2020. Very few tax teams appear to have evaluated the likely future alternative scenarios, let alone made plans or put them into implementation.”
Tax is firmly under the spotlight and in the global insurance industry, the ramifications for finance and tax teams will be felt in both a new set of business demands and an overhaul of how these functions interact and operate. PwC’s report says that globally, this industry will find it difficult to cope due to the accelerating shift in market expectations, and challenges to existing business models, in a sector where operational processes are already stretched.
Obianwa concludes: “The long-term prospects for insurers are positive as people around the world live longer and have more wealth to protect.
Yet they also face the disruptive impact of new technology, changing customer expectations, more exacting regulation and enduring economic uncertainty. Insurers’ ability to identify and manage emerging as well as familiar risks will be one of the key differentiators for success in this volatile competitive environment.
Taiwo Oyedele, head of tax and regulatory services at PwC Nigeria, commented: “Tax has always been one of an insurer’s most significant expenses, comparable to payroll and claims. CFOs and CEOs have looked to their tax professionals to find ways to manage their tax liabilities, and as transactions and legislation become more complex and sophisticated, so do tax arrangements.
As companies focus on maximising return on equity and managing capital under new solvency regimes, the value that can be created by tax professionals is becoming increasingly recognised and highly prized.”
“The certainties and demands that have shaped tax management over the past 30 years are being swept aside. What tax teams are required to do, how they do it, who does it and where they do it will all change as a result. The challenges of managing risk and tax costs are heightened by a raft of new tax compliance demands.