Enough is known about the shape of final Solvency 2 requirements for insurers to being work. However in my view the industry has not yet realised the extent of work required to be done duing the next two years. Any further delays now will be costly in the future. This is particularly true for firms that want to use internal models.
A recent survey conducted by Deloitte indicated that most companies are very much in the planning phase for Solvency 2. Some other observations coming out of this survey indicates the following:
1. Stakeholder Engagement: Majority of the companies still do not have adequate board and manegerial engagement. Without sufficient board and manegerial engagement there is a risk that the new regime would not be fully embedded within the organisation and some opportunities may be lost.
For companies who have not done this, it is important that the board and managerial team are fully briefed and engaged on the regulatory requirement. Internal stakeholders need to be identified and assigned clear roles and responsibilities.
2. Strategic Intent: A clear and well thought-out strategy can enable an organisation to equip itself with a competitive edge. An organisation implementing Solvency 2 can also benefit from potential synergies with other programmes (e.g. IFRS II). The survey indicated over 60% of the companies are yet to determine their implementation approach for Solvency II.
Companies need to assess the wider impact of Solvency 2 (e.g. how can the regulations be used to improve business performance). They also need to explore potential synergies arising out of their existing programmes and future regulations.
3. Preparedness: It is heartening to know that gap analysis is underway in most companies. However, the next stages are yet to be defined. One-fifth of the respondents had an internal team in place with full responsibility for preparing for Solvency 2 requirements. Many companies are expecting to bring external resources to help them implement the requirements.
To ensure preparations are complete in time companies should have a clear vision for the 'end state'. They need to review priorities within their change portfolio and shift priorities, if required. Finally, for a programme of this magnitude, it is important that they have an appropriate programme governance in place.
4. Integrating Solvency II requirements within the business: This is an area where many firms need to undertake more work. Unlike previous regulations (except perhaps TCF) Solvency II should be seen as an enabler for better business performance. Most companies have not aligned their risk decisions to strategic objectives. The risk appetite is largely focussed on capital requirements with little regard to earning visibility. For many companies there is a need to ensure that risk based decision making is adopted as a culture within the organisation.
To ensure that Solvency II requirements are embedded, companies need to assess the ‘cultural dimension’ of the regulation and design an adequate change programme for it.
5. Implementation: Till date companies have predominantly focussed their attention on the requirements of Pillar 1 at the expense of Pillar 2 & 3. While most of the companies have programme initiation, gap analysis and implementation planning on their agenda for the next six months, some key areas are still neglected (e.g. Management Information). Quality information will play a key role in gaining strategic and operational advantage and need to be considered early on.
For companies contemplating implementation, they need to plan for the requirements of Pillar 2 & 3 concurrently. Companies also need to consider their management information needs as a part of their holistic approach.
Solvency II is not expected to be in force till October 2012. However, insurance companies do not have the luxury of time on their hands. The experience of implementing Basel II regulations in Banking suggest that insurance companies need to initiate change programme now in order to avoid last minute surprises. Substantial changes are required across the enterprise and most companies are very much in the planning stage for Solvency II. The next 6 – 12 months call for significant investment of efforts to make that happen.
No comments:
Post a Comment