To maintain and grow this position, directors, executives, service providers and the regulator need to ensure the smooth implementation of the new Solvency II regulatory standards in a way that enables companies to extract value in return for the significant implementation investment. To do this:
New poll indicates:
The new Solvency II regime, with a deadline for implementation of January 2014, harmonises EU insurance regulation and is primarily designed to require a more transparent risk based system of management for insurance companies and at the same time increase the sophistication applied to determine the amount of capital firms must hold to reduce the risk of insolvency.
PwC's poll on Solvency II reveals that the total expected spend on Solvency II implementation by the Irish insurance industry will be well in excess of €100m, with a number of respondents each anticipating to spend in excess of €5m within their organisation. According to the survey, indicative trends are that Solvency II implementation by Ireland's insurance industry is close to half complete.
Addressing the European Insurance Forum conference in Dublin today, Garvan O'Neill, Financial Services Regulatory Partner, PwC, said: "The key factor not appreciated by many organisations is the cultural impact of Solvency II. When one steps back and looks at how it is asking organisations to make decisions, to co-ordinate their control functions, manage their risks and evidence all of these, little can happen without a major cultural shift. These changes also come with significant resource demands and, frighteningly, in areas where an abundance of resources does not exist. Separately but equally challenging, to meet additional reporting requirements, a not insignificant IT implementation programme lingers in the long grass."
Garvan O'Neill added: "Based on our survey output, two thirds of companies accept that Solvency II will necessitate a cultural and behavioural shift to ensure governance and risk management processes are re-engineered or introduced to the business." He continues by noting that "ownership of a project of this magnitude needs significant input from the top of each organisation. Furthermore, in order to get value, the Board and executive must clearly and transparently establish the relationship between risk, capital, pricing and return. However, indications from our survey show that the majority of Ireland's insurance industry do not feel that Solvency II would yield improved financial results and this may highlight that the potential value of a more risk based and, by extension capital, weighted decision making process has not been appreciated by Boards and executive teams at this time."
The skilled resources required to support the overall Solvency II implementation programme, and to educate the business and embed the new approaches, are in short supply. Most particularly, resources that are sufficiently well versed in the overall requirements of Solvency II and have a sufficiently deep risk management background are in short supply across the whole of Europe.
Solvency II also requires a step change where data management and resources are concerned. For example, there is a five to tenfold increase in the data required to meet the Solvency II reporting needs. The data needs to be aggregated and calibrated into the correct reporting formats and will require a significantly enhanced data management process. To make this happen, significant resources and upskilling will be needed to ensure what is delivered is fit for purpose.
Garvan O'Neill concludes that "the benefits of meeting the Solvency II requirements should include a more transparent risk-reward decision making process, enhanced capital management and more detailed and flexible data and management information reporting capabilities - all of which are good for the business of insurance in the long run."
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