The Clear Path Analysis report Technology for Solvency II, released today, shows that some industry professionals are estimating that the cost of compliance for the UKs largest insurers is likely to exceed 200 million eachwith as much as 65% of spending allocated to new technology.
Firms that fail to embrace Solvency II and the opportunity it presents to maximize the use of data across their organizations will lose out commercially and see their market competitiveness erode. The focus to date has been on the liability side of the balance sheet, but attention must now shift to the asset side. Market risk will account for two-thirds of a Life Company’s Solvency Capital Requirements (SCR) and one-third for a Non-Life Company.
The report analyzes the key issues in using technology to meet and satisfy the upcoming Solvency II framework and requirements leading up to enforcement. Solvency II will drive a renewed focus on data governance and data quality across the global insurance industry, regardless of individual insurer size or complexity.
Regulatory expectations differ from one country to the next, and some insurers are taking a more conservative approach by targeting a minimum compliance standard formula for day one which will act as a stepping stone for an internal model approach at a later date, Andrew Waters, vice president of insurance solutions at QuIC Financial Technologies, says. This provides a good foundation and infrastructure from which to build in the future as best practice emerges.
This is really a once in a lifetime opportunity for insurance companies to change the approach to their business so you need senior management sponsorship of a vision that is meant to change the culture of the organization which is no small task.
Sanjay Kaul, risk and regulation lead for UK financial services at Logica, says the board ultimately has the responsibility for ultimate responsibility for meeting a companys obligations in the directive, which cannot be delegated under Solvency II.
Its like trying to find the right school to put your kids into, youve got to carry out the due diligence, and stay on top of it, Kaul says. You are ultimately responsible for the welfare and development of your child even though someone else is doing the teaching.
In a detailed contribution Solvency II and Data: Myths and Misunderstandings, Christopher Saunders and Graham Olsen, Senior Managing Consultants at IBM Global Business Services (UK and Ireland), seeks to bring clarity and eliminate some myths head-on. Since Solvency II is considerably stricter and more comprehensive than previous regulations, few insurers currently have a data governance framework in place that is capable of meeting the new requirements.
Although enhancing data governance is a critical requirement for Solvency II implementation, it should not be seen as merely a necessary evil, the report Solvency II and Data: Myths and Misunderstandings, says. Improved data governance enables continuous improvement of data quality, which can help reduce operational costs and significantly mitigate business risks.
The authors warn that this cant be left to IT only and that the business must focus on it. They go on to point out that you cant rely on your subsidiaries to self-certify, and explain that Solvency II is a world where black boxes are not permitted.
Roel Wolfert, global marketing and strategy director at Logica, wrote on Governance at the Core and pointed out that risk management has come a long way in insurance, largely because of its separation from the front office and the fact that this is now typically a board level function.
Risk management shouldnt just be about appeasing the regulator, as the cost for these projects is a significant part of the budget, Wolfert says. Besides compliance it should bring about valuable analytics as well as integration and communication between key risk management stakeholders across the institution.
(CM)