Only half of insurers understand the full impact of Solvency II and less than a third have adequate budget in place to complete the programme, according to PA Consulting Group’s latest survey of insurers.
After a long period of uncertainty, 1 January 2016 is now the proposed date for implementation, as was correctly predicted by nearly three quarters (74 per cent) of insurers. Despite this, fundamental issues remain for the industry to be ready in time. Across the three pillars of the directive, the challenges our survey highlighted include:
• Pillar I – despite a narrowing window to achieve model approval from regulators, half of insurers have increased the scope of their internal model. With only 45 per cent believing the model will result in lower capital requirements, the business case for internal models should be examined fully before expanding scope further, and for some, a reduction in scope may be more appropriate.
• Pillar II – two thirds of insurers do not expect to be ready to meet EIOPA’s preparatory guidelines on the System of Governance by 1 January 2014. Although the guidelines are preparatory and there is no need for a costly or rushed implementation, firms must immediately build a credible plan to achieve compliance.
• Pillar III – 80 per cent of insurers expect reporting to start by mid-2015 and almost all (93 per cent) expect to be ready in time. However, there is a risk the industry is underestimating the challenge as, despite the demands of Solvency II reporting, no firm has spent more than 25 per cent of its budget on developing reporting systems with a fifth of respondents spending less than 5 per cent.
The biggest overall delivery worry for insurers is further change to the timetable or requirements, followed by the availability of operational staff.
Commenting on the report, Asesh Sarkar, PA Consulting Group insurance expert, says: “As insurers and regulators prepare to step up their Solvency II activity, firms need to ensure their activity – and their budget – is focused in the right places. This means taking a hard look at the value of internal models and ensuring they are investing enough in IT to prepare for Solvency II.
“Delivering programmes as business-as-usual is a workable approach, but firms cannot afford to lose sight of the areas where more rigour and control are required or they risk costly failure.”
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