The greatest risk facing the insurance industry is the raft of new regulation being introduced at international and local levels, according to a Centre for the Study of Financial Innovation (CSFI) survey.

The CSFI/Pricewaterhouse Coopers Insurance Banana Skins survey found that new rules governing issues such as solvency and market conduct could swamp the industry with costs and compliance problems.

The survey questioned almost 500 insurance practitioners and industry observers in 40 countries about where they saw the greatest risks over the next two to three years.

Regulation emerged a clear leader in all major markets, including North America, Europe, Middle East/Asia and the Far East/Pacific.

The EU's Solvency II Directive was the greatest concern, but new international reporting standards, the UK's review of retail distribution practices and other tax and regulatory initiatives were also identified as problem areas.

The availability of capital to meet tougher regulatory requirements, and the uncertain state of the world economy and financial markets also featured on the list of concerns.

Following the recent disasters in New Zealand and Japan, incidences of natural catastrophes rose up the list of concerns, along with political risk, and concerns over the solvency of eurozone countries.

David Law, global insurance leader at PwC, said: "Insurers' attention has clearly changed with much more focus now on how to deal with the increasing regulation they face. This is potentially distracting key resources and talent away from opportunities to grow their business. To gain a competitive advantage, insurers need to move the regulatory burden away from a box-ticking exercise to something that is embedded in the business and used to manage the changing risk profile. All this is set against a challenging backdrop of increased natural catastrophes, low interest rates and an uncertain world economy."

The shortage of new talent in the industry emerged as a new worry

Mark Stephen, UK insurance leader at PwC, said: "It is encouraging that talent is now being recognised as one of the top risks. Leading insurers have been focusing on this and it's clear that the industry as a whole has woken up to the very real need to nurture its talent and recruit from outside.

"The issue is particularly acute in London as the flood of new regulation has swallowed up key talent and highlighted the industry's severe skills shortage."

Survey editor David Lascelles, added: "These results show an industry which is being pressed on many sides at once, and will need skilled management to get through. It is not clear whether new regulation is helping or hindering it."

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