Insurers Recognize Need for New Systems for Compliance, Finds Survey

Over 70% of percent of global insurers polled by Northern Trust said they were concerned or unsure about the ability of their current systems to meet their future regulatory requirements.
By Jake Safane(2147484770)
Over 70% of percent of global insurers polled by Northern Trust said they were concerned or unsure about the ability of their current systems to meet their future regulatory requirements.

The survey polled over 250 senior investment managers across the U.S. and Europe at global insurance companies, each with more than $1 billion in assets, and 60% have more than $5 billion in assets.

While two-thirds of respondents indicated satisfaction with their current systems, the majority did not feel confident that these systems could handle future needs. The actual number of those who said they were concerned (29.9%) was similar to those who are not concerned (27.5%), but the rest fall into the middle, indicating a lack of certainty about the future.

In the U.S., mangers had a bit more clarity about their feelings. More in the U.S. were concerned (32%) than those managers in Europe (27.8%), while slightly more were also not concerned in the U.S. (28% vs. 27% in Europe). Thus, more managers sat in the middle in Europe.

The concerns in the U.S. primarily stem from Dodd-Frank’s liquidity, leverage and capital requirements. In Europe, managers are concerned about Solvency II, which will add additional capital requirements and regulations on governance and risk management, requiring more disclosures to identify risk earlier.

“The focus on spending in respect to Solvency II has been heavily skewed to the liability aspects within insurance companies,” says Nick Alford, a partner at Kingston Smith Consulting. “Investment managers still have a lot of work still to do to enable access to data in sufficient detail.”

78% of managers also said in the survey that the costs of their current systems are competitive or very competitive, but nearly two-thirds agreed that they need to move away from customizable systems to industry standard platforms that can be outsourced, as 50% said their current systems are “customized with obsolete code.” Plus, many firms’ workforces are aging, with a third of respondents saying that between 5%-10% of their operations staff will retire in the next five years, and another 39% said that between 11%-25% will do the same.

“Insurance companies will require data in the right format and right degree of detail in order for their systems and processes to work,” says Andrew Melville, head of insurance product and strategy, Europe, Middle East and Africa, Northern Trust. “As many of their legacy systems have been modified by multiple programmers over the years with little documentation, maintaining these existing systems will similarly be a challenge as programmers retire or leave the company.”

Going forward, insurance managers may recognize a need for new systems and processes, but for now, more than half said their firms are spending less than 25% of their operational resources on new initiatives, and 48% said they’ll be looking at an outsourced component five years from now.

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