The impact of the financial crisis is the most significant risk facing the insurance industry, according to a new report by Ernst & Young. In the Second Annual Business Risk Report - Insurance 2009, model risk and regulatory intervention rank second and third among the top ten risks.

"As a result of the current economic conditions, there have been significant changes in the risks since the release of our 2008 report," says Peter R. Porrino, Global Director of Insurance in Ernst & Young’s Global Insurance Center. "As insurance companies continue to navigate their way through this downturn, they should be focusing on changing their approach to risk management, regulatory analysis and the communication of risk information."

The report identifies the top 10 business risks faced by the industry as ranked by more than 100 leading sector analysts. The top ten risks this year are the financial crisis, model risk, regulatory intervention, managing the non-life underwriting cycle, geopolitical shocks hightened by financial crisis, demographic shifts in core markets, emerging markets that are susceptible to rapid and unexpected deterioration, channel distribution, legal risks and climate change and catastrophic events.

While much of the downside risk may have already occurred, the current market turbulence still poses an immediate threat. Mr Porrino concluded: "In this environment, it is essential that insurance companies address product innovation, changing regulation, investment strategies and capital requirements to help retain earning power and maintain agency ratings. This will help to serve as a starting point for discussions among leadership so that their near- and long-term business strategies take these issues into account. While instability still prevails, opportunities abound for those companies that are able to rebuild and strengthen their businesses