The road map for Solvency II has experienced many changes. The new effective implementation of the European prudential regulation is now planned for January 2014, but new clarifications are expected from the regulator prior to this date, notably for regulatory reporting. These uncertainties should not delay insurers from preparing for the Solvency II data management and data quality aspects.
Solvency II requires not only that insurers meet capital requirements, but also prove they have a sound and efficient enterprisewide risk management framework in place. The raw material that feeds the risk management framework, and therefore conditions its results and efficiency, is data. Taking into consideration the comprehensiveness of risks included in the solvency regulation, insurers have to identify, manage and monitor all categories of risks. Figure 1 provides an example of the sets of risks, and therefore the data needed to comply with Solvency II.
Figure 1: Risk Categories
The quantity and quality of data needed to monitor these risks adds to the complexity of the risk management framework insurers need to implement and maintain. This complexity may mean that the firm must seek external support, including IT vendor consulting skills.
Rely on competent, informed partners
When searching for vendor support, there are many decisions to be made and choices to consider. A recent report from Celent, Solvency II IT Vendor Spectrum, analyzes the 15 vendors in the Solvency II space. The report makes recommendations for evaluating an insurer’s current IT infrastructure, assessing vendor capabilities and choosing the level of service: best-in-breed solution versus enterprise solution; insourcing versus outsourcing; and building a tailored approach to leverage existing resources.
Regardless of the approach, insurers should confirm that the IT vendor demonstrates:
- Capabilities to understand insurers’ preoccupations and feedback. Without a good understanding not only of regulation but also of business challenges faced by insurance companies, it is difficult for IT vendors to deliver high-quality services. Solvency II IT vendors should frequently gather insurance business user feedback about their solutions in order to include valuable improvements in new releases.
- Ability to quickly adjust the Solvency II solution. IT vendors should have people involved in discussions with the parties playing a role in the Solvency II regulation implementation, such as the European Insurance and Occupational Pensions Authority (EIOPA). Being close to these bodies allows them to demonstrate their knowledge of what is going on when talking to their insurance clients, and also to adapt their solutions quickly to regulatory changes. In times when there are still clarifications needed, notably for regulatory reporting, being able to demonstrate a good understanding of the latest discussions increases the trust insurance clients place in their IT vendor partners.
- Ability to implement new releases. It is important for IT vendors to demonstrate that they have an efficient and transparent release path. They need to update their system on time to allow changes required by the regulator to be taken into consideration, and when possible, they should issue detailed release implementation procedures.
Solvency II should not be considered a new regulatory burden. It should be viewed as an opportunity to improve and get more competitive through enhancement. It is strongly recommended that insurers create Solvency II dedicated task forces within the organization. Insurance companies that understand how Solvency II can drive improvement will increase their chance to be successful in the long run.
In this free white paper, Data Management and Solvency II: A Critical Partnership, you’ll find some great information to help you plan for Solvency II compliance. Download it today.