Solvency II is a regulatory base-line
For the Norwegian nonlife insurance company SpareBank 1 Skadeforsikring, the Solvency II regulations have been the driver behind implementing Enterprise Risk Management and becoming Solvency II compliant is only a part of this. The process has professionalized risk management, and the goal is to achieve a number of business advantages from the initiative.
 |
|
SpareBank 1 Skadeforsikring |
- When we have to invest so heavily in resources and have a high level of management attention, it was clear to us from the beginning that being compliant would be a regulatory 'base-line' for the project, Christian continues.
Because of the significance of the project the steering committee is the company's management team. The board of directors are also actively involved in project development and to evaluate its significance for SpareBank 1 Skadeforsikring in the future.
Two sides of the same coin
Achieving compliance and business advantages are two sides of the same coin, but one of the most important prerequisites is having a data and information model that is flexible enough to handle whatever usage scenarios you can think of:
- We spent a great deal of time and energy on analyzing data warehouse, architecture and process mapping, and did some investments based on these findings. The results from these investments are now starting to materialize and will allow us to both achieve Solvency II compliance and advantages in areas such as pricing, innovation as well as risk and capital management, Christian Parelius explains.
To avoid making the model too complex early in the process, it's important that we prioritize on a few areas and then develop the model as we work our way through the priorities.
Internal models on core business
From the very beginning, it has been our ambition to use partially internal models on our core business areas: - Internal models are part of the business case we did for Solvency II and we plan to apply for approval of internal models for premium risk, reserve risk as well as market risk, Christian Parelius says.
SpareBank 1 Skadeforsikring has invested a great deal of resources in validating and documenting the process leading up to Solvency II approval. According to Christian Parelius, this has been a learning experience and those who do not take this task seriously are in for a few surprises:
- We have spent a lot of time in gaining insight into our data and to evaluate data quality and processes. I think that some companies will find that their data are inadequate and the investments will be too big because of this.
- We are now in a position where we - again - can focus more actively on other aspects like profitability analyses, competitor analyses and strategic directions, Parelius continues.
Transparency and innovation
As a result of the Solvency II regulatory Christian Parelius expects increased transparency and that this will drive innovation: - The increased transparency will have consequences for the capitalization of a company. The profitability in each company will become more visible and this will influence pricing. Cost-benefit from the products will become more evident and this will drive innovation, Parelius says.
He also expects that Solvency II will influence the competitive landscape: - Harmonized rules and supervision, paired with the increased transparency, will make it easier to look at competitors and to evaluate the solidity of another insurer and reserves, he says and continues:
- We need to know and understand what our core competitors do and we benchmark our performance against these competitors. Going forward, we have to consider the consequences of increased competition and to stay competitive we will have the necessary innovation.
Christian Parelius also has positive expectations to the European System of Financial Supervisors: - I believe that establishing the same starting point for all insurers in Europe with the same rules and regulations must to be an advantage. The challenges of having national supervisors that implement the same regulatory differently became very obvious with the Basel regulatory.
Platform for understanding risk
With IT-architecture, data and applications almost ready, SpareBank 1 Skadeforsikring are now focusing on organizational aspects like risk understanding, knowledge sharing and taking ownership of risk management:
- We want the individual business units who own risk to also have a greater understanding of risk. One of the tools we found to be useful is to establish risk management forums with people from different areas like claims, retail, actuary etc. If you want valuable discussions about risk you have to get everybody who can influence the company's risk management involved, Christian says.
There are high expectations to how the new IT-platform will transform SpareBank 1 Skadeforsikring: - The new information model and new analytical tools will make it possible for business users to work and analyze data themselves to faster gain insights about customers and markets. This will free up time for our actuaries who will be able to focus more on how we get increase the value from our portfolio, Christian concludes.
Building a platform with SAS Institute
SpareBank 1 Skadeforsikring is building the new platform on solutions from SAS Institute: - The data and information model will be key to achieving our ambitions. The structure we had before would not have been able to meet the requirements for compliance or help us achieve the business goals we have. This is why we decided to build a data warehouse and an information model with SAS Institute, explains Christian Parelius. About SpareBank 1 Skadeforsikring
SpareBank 1 Skadeforsikring has a 9% market share and is owned by the SpareBank 1 Group, which operates the bank and product cooperation within the SpareBank 1 alliance. With 22 banks and 340 offices, the SpareBank 1 alliance is one of the largest financial service companies in Norway. The goal is to be the most recommended bank for private customers, as well as small to medium-sized businesses.
SpareBank 1 Skadeforsikring acquired two companies in 2010 - Skandia Lifeline Norway and Unison Forsikring. These acquisitions have enabled synergy effects within risk management, as well as advantages within innovation and capitalization related to Solvency II.
