Risks in finance
The CSFI's 'Banana Skins' series in Banking, Insurance, and Financial Inclusion
Over the past seven years, Lucid co-founder Keyur Patel has co-authored the Centre for the Study of Financial Innovation's 'Banana Skins' series in banking, insurance, and financial inclusion - the gold standard for risk assessment in the global financial industry.
Each Banana Skin report surveys up to a thousand senior financial services practitioners, observers and regulators, from 50+ countries, on the main risks facing their sector.
The Banking and Insurance surveys are supported by PwC. The Financial Inclusion survey is supported by Center for Financial Inclusion at Accion and the City Foundation.
Each Banana Skin report surveys up to a thousand senior financial services practitioners, observers and regulators, from 50+ countries, on the main risks facing their sector.
The Banking and Insurance surveys are supported by PwC. The Financial Inclusion survey is supported by Center for Financial Inclusion at Accion and the City Foundation.
Insurance Banana Skins 2019Lead author: Keyur Patel
Published by the Centre for the Study of Financial Innovation, with support from PwC Over the past few years there has been a dramatic shift in the types of risks most worrying the global insurance industry. The dominant concerns in the aftermath of the financial crisis – about regulatory overload, macroeconomic instability, and insipid investment performance – are still widespread, but have been superseded. Replacing them is a growing consensus that the industry’s future will be defined by how effectively it deploys new technologies – and for many incumbents the prognosis appears highly uncertain. Taking the top spot, for the first time in this series, was technology: the risk that the insurance industry will fail to manage its business and technology modernisation effectively. “Old business models are dying/dead, and are only partially being replaced by new models. It’s very likely many insurers will not succeed in wrestling themselves from legacy business, resulting in declining profitability and take-over”, said the director of risk at a life insurer in the Netherlands. One of the most striking results from this year’s survey was the position of climate change (No. 6). Respondents argued that many risks will become very difficult or impossible to insure due to climate change – and the industry urgently needs to shift its focus to prevention rather than indemnification. The chief executive of a P&C insurer in New Zealand said: “A 3-degree world may not be insurable”. |
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Finance for all: Wedded to fintech, for better or worseLead author: Keyur Patel
Published by the Centre for the Study of Financial Innovation, with support from the Center for Financial Inclusion at Accion and the City Foundation Nowhere is the transformative potential of financial technology lauded more enthusiastically than in the business of financial inclusion: the provision of banking, savings and insurance services to people with limited access to them, or none at all. There are persuasive reasons for this. Innovations in IT promise to bring financial services to vast underserved markets – expanding institutions’ reach, helping them better understand client needs, and improving operational efficiency. The opportunities to serve a market of at least 2bn people worldwide are enticing – both the commercial imperatives, and the potential to do much good. But there is a danger that in this rush of excitement, the uglier sides of new technologies are overlooked. The financial inclusion industry is now resolutely mainstream: an interconnected ecosystem of traditional microfinance institutions (MFIs) and younger fintech companies, commercial banks and non-financial institutions such as telephone service providers. What happens when these service providers get it wrong? The introduction of new technologies to these markets raises pointed questions about their efficacy and reliability; about overindebtedness and customer protection and data privacy. |
Insurance Banana Skins 2017Co-author: Keyur Patel
Published by the Centre for the Study of Financial Innovation, with support from PwC These are disorienting times for the global insurance industry. Insurance providers continue to grapple with many of the challenges they have faced over recent years, including a difficult investment climate exacerbated by very low interest rates, and sweeping regulatory changes. But, even more urgently, they must confront profound structural and technological changes to the industry which could upend traditional business models. This year, a Banana Skin which came in at No. 15 just four years ago has surged to the top of the table. The position of 'change management' reflects concern, even doubt, about the industry’s ability to address the formidable agenda of digitisation, new competition, consolidation and cost reduction it faces. Change is seen to take many forms, and is being thrust upon an industry which was described by one respondent as “glacially slow in its response to change”. Insurance markets are being transformed by rapidly evolving technologies such as driverless cars, the ‘internet of things’ and artificial intelligence. This is putting many insurers in a perilous position. Those companies which are too slow to adapt could see their business models become obsolete, and perhaps even their existence threatened. Yet those which hurry in to new markets without sufficient loss data are in danger of exposing themselves to other serious risks. |
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Financial Services for All: It's all about strategyCo-author: Keyur Patel Published by the Centre for the Study of Financial Innovation, with support from the Center for Financial Inclusion at Accion and the City Foundation Much has been said about business opportunity in the market for financial inclusion services: 2bn people across the world who have little or no access to banking or savings or insurance, the possibilities that new technology offers to reach these markets, and – not least – the good that access to finance can do to enable these markets to grow. But there is another side. This is a risky business. Many of the markets are untested, the consumers lack financial sophistication, regulation may be unfriendly, and the technology may not always deliver what it says on the tin. If there is encouraging news, it is that nine of the ten highest-ranking risks were ‘internal’ – which is to say that they’re within the control of institutions providing services to the industry. But the results also show very clearly that this is not a market to be approached lightly. It needs strong governance, sound risk controls and mastery of the complexities of technology and product design. Above all, respondents were concerned about service provers’ ability to develop a relevant and competitive Strategy. The danger is that institutions which fail to create and implement a sound strategic plan – whether it’s vision they lack, or the capacity to develop one – will become side-lined and ultimately face extinction. |
Banking Banana Skins 2015: Recovery under threat
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Co-author: Keyur Patel
Published by the Centre for the Study of Financial Innovation, with support from PwC The global banking industry is in the advanced stages of its recovery from the financial crisis. Threats that once put the entire financial system in jeopardy have now receded, from urgent shortages in liquidity and capital to huge losses from exotic products in the aftermath of the crash. Yet, as the CSFI’s 2015 Banking Banana Skins survey reveals, a return to health is far from assured. There are lingering concerns about a hostile public environment, inadequate risk management and poor conduct practices. These are joined by a rapidly emerging set of risks around technology, and particularly cybercrime, with banking business models coming into question in the face of competition from non-traditional entrants. |
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Setting standards: The route to reviving professional standards in bankingAuthor: Keyur Patel
Published by the Centre for the Study of Financial Innovation, with support from the Chartered Institute of Securities and Investment There has been much debate about how to resolve a perceived deficiency of professional standards in banking. The new Banking Standards Review Council – ostensibly a voluntary initiative of the big banks, though under the stern eye of Parliament – is part of the industry’s proposed solution. But, by its powers and funding, it is intended to tactfully ‘nudge’ rather than to bludgeon the banks. It will also not – at least initially and maybe never – seek individual membership. Is a part of the answer, then, that there needs to be a greater role in banking for professional bodies – as is the norm across many professions? And, if it is, can the institutes meet that challenge? |
Insurance Banana Skins 2015Co-author: Keyur Patel
Published by the Centre for the Study of Financial Innovation, with support from PwC The global insurance industry is in the midst of transformative change. Sweeping new regulatory regimes are coming into force across the world. Emerging technologies are redefining the relationship between insurers and their customers, and creating entirely new areas of risk. The industry faces profound structural changes, including competition from non-traditional entrants that threatens the viability of current business models. It does so while stymied by insipid investment performances in a largely gloomy macroeconomic environment. Against this backdrop, anxiety is at an all-time high. |
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Banking Banana Skins 2014: Inching towards recoveryCo-author: Keyur Patel
Published by the Centre for the Study of Financial Innovation, with support from PwC Following a half decade of very little respite for the global banking industry, the CSFI's latest Banking Banana Skins survey signals welcome - albeit tentative - optimism about the industry's outlook. But the responses still paint the picture of a global banking sector that is very vulnerable to risks in a rapidly evolving financial climate. These risks range from lingering threats to the global economy posed by the eurozone and China, in particular, to questions about governance, technology and pricing failures where complacency could have devastating consequences. Yet, paradoxically, it is the raft of regulation intended to nurse the industry back to health that is perceived to be doing the most damage. |
Insurance Banana Skins 2013
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Co-author: Keyur Patel
Published by the Centre for the Study of Financial Innovation, with support from PwC Even by the standards of financial services, the aftermath of the crisis has been difficult for the insurance industry. Over the past few years its recovery has been stymied by its own cyclical downturn and an unprecedented streak of natural disasters. The global economic outlook remains bleak and, in the non-life sector, profitability is increasingly threatened by excess capacity. Though there is a glimmer of optimism in the CSFI’s 2013 Insurance Banana Skins survey, the outlook for the industry remains highly uncertain. Familiar threats in recent years, such as meagre investment returns and the spectre of more frequent natural catastrophes, have lost none of their potency, and are sharpened by fast-growing concerns around business practices and risk management. |
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