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Winning the Solvency II gamble

Wait and see attitude toward Solvency II implementation costs more than you think

In less than 6 months – on January 1, 2013 – Solvency II regulations will become official and Solvency II implementation, including regulatory measures, will start on January 1, 2014. This leaves insurance companies less than 18 months to become Solvency II compliant. Unfortunately, not all of the regulatory details have been officially finalized, including the answer to what will happen to an insurer that is not compliant by January 1, 2014. So, insurers that see implementation only as a regulatory compliance exercise may take a gamble that the local regulator won’t knock on their door in the early days of Solvency II. But, at what cost?

The gamblers would only concentrate on the reporting side of Solvency II, described in pillar 3, without paying much attention to qualitative aspects, described in pillar 2, like full auditability, automated processes and documentation. Of course, such an approach would leave them additional time for implementation without the risk of projects work that needs to be redone due to the changing regulatory requirements. A calculable risk, taking into consideration that such an insurer will definitely not have to close his shop due to the protection of its policy holders. And, fines might be lower than project costs that might be wasted.

With such an approach, though, this gambler will not be able to discover any benefits that might be achievable due to proper risk management. By looking at the individual risk exposure, an insurer can identify areas of improvement in terms of optimized capital allocation, better suited reinsurance strategies, new business planning oriented on the risks an insurer wants to take in areas that are seen as profitable and getting rid of lines of business or products that are unprofitable in the long run. Only if an insurer accepts that he has areas for improvement – and that his competitors might also try to become better, more profitable, and therefore more successful, attacking him later on his own ground – will he understand the real value of integrated risk management, aligned with an individual business strategy, bringing together the various departments that in the past only worked next to each other but not often with each other.

The basis of such an integrated risk management approach, leading to Value Based Management in the future, are strategies that are linked to the individual business of the insurers, skills of the key players, well-structured processes that include all interested parties within the company and of course, last but not least a solid technological infrastructure to turn theory into practice. There is more involved than sophisticated processes and intelligent business approaches, insurers must have the right data available, in the right quality, at the right time to feed those sophisticated systems. Only then will the relevant information be available to the right decision makers at the right time – success. Looking at the hundreds of different data sources in a company that need to be integrated, data management is one of the biggest topics when it comes to turning the idea of risk management into business success.

So, are you a gambler? If not, download this free white paper, Data Management and Solvency II: A Critical Partnership, where you’ll learn more about why you should plan early for Solvency II implementation and what business benefits you can gain from implementing early.

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