Mar 20, 2008

Emerging markets fourth biggest risk for insurance cos: E&Y

NEW DELHI: India along with other emerging markets may have earned a reputation of having the top growth potential for the World Inc, but they pose the fourth biggest strategic risk when it comes to the insurance companies.

According to a study conducted by global advisory firm Ernst and Young, emerging markets provide significant opportunities but a rapid growth in these "thinly regulated" markets could lead to financial instability, regulatory backlash, poor business practices and also certain political risks for the insurance companies.

Incidentally, the E&Y report, which has ranked top 10 strategic risks for various industries for the next five years, has named climate change as a bigger threat than even the natural disasters for the insurance sector.

Emerging markets, named as the fourth biggest risk, has been ranked even higher than the regulatory interventions, technology integration, securities, legal risks and geopolitical or macro-economic shocks.

While climate change has been named as the biggest risk for insurers, it is followed by demographic shifts in core markets at the second and catastrophic events at the third.

Pointing out that growth plans of many insurance firms are essentially emerging market strategies, the report said that the industry have opportunities to develop new products, better infrastructure and also to increase the customer base.

The report noted that Russia, China and India are often the main beneficiaries of the market growth.

"Success in these markets is by no means assured, and today's leading global players could be displaced. There is also a competitive threat from other western insurers with good emerging market strategies," it added.

"The rapid growth in thinly regulated markets can lead to financial instability, regulatory backlash, poor business practices and the threat that politicisation of issues such as premium growth will generate reputation, regulatory and political risks," E&Y said.  -