Solvency II has forced insurance companies to relook at the business in a holistic manner – an end-to-end value chain consisting of internal and external business processes comprising of risk, finance, policy admin through to sales and distribution. No longer can executives afford to think of their functions as ‘islands’. There is an urgent need to stitch the disconnected systems, processes and stakeholders in a single ‘eco-system’.
Insurers since long have been having a flirtatious relationship with Business Process Management (BPM) tools. I guess, the time is ripe for BPM tools to shine and rescue the insurance companies from their plight.
So, how can BPM help insurance companies meet their Solvency II compliance?
Solvency II, in a nutshell, is about creating transparent processes across the organisation, which would help executives to get a pan-enterprise view of risk. The three pillars are built around identification, quantification and reporting of the risk to the regulators. In order to achieve this, insurers are building/revising their risk management frameworks. A Risk Management Framework (RMF) in a nutshell is an integrated view of risk management including consistent processes for analysing, evaluating, mitigating and communicating risks. RMF will enable an insurer to bring together a risk-based procedure, governance structure and integrated methodologies where the relationships between processes, risks, controls and regulations are made more visible.
BPM tools can help companies meet this challenge effectively. The formal processes, once approved by the regulators can be built using BPM and deployed in the organisation. Workflows are best placed to build governance structures to manage risks with built in triggers to escalate to appropriate roles in the organisation, should the need arise. Reporting (Pillar 3) can be delivered with greater certainty using the dashboards.
Solvency II is not ‘one-off’ compliance. CEIOPS expects insurance organisation to embed a culture of risk within the organisation, using Internal/Standard Model and Use tests to validate their risk management frameworks and constantly improvise the results for better quantification of risks. Building a ‘one-off’ compliance for Solvency II would entail repeated enhancements to the systems and processes. As against this, BPM tools provide the flexibility to dynamically change the processes with minimal costs and minimal down-time.
Documentation is another area of concern for insurers and regulators. CEIOPS has published guidance on this topic and insurance companies are expected to maintain comprehensive documentation on the processes with detailed explanation. While companies have been exploring Sharepoint and similar tools for this, I strongly recommend using the document management capabilities in BPM for this purpose. The document management capabilities in a BPM tools provides for scenarios where documents need to be accessed by a large group of people who need to collaborate on them. Another point in favour of BPM!
Many insurance companies have successfully deployed BPM in some functions (or majority of functions) in their organisation. It is the perfect time to extend the deployment to cover critical areas which would also help them comply to Solvency II.
Monday 25 October 2010
Mobile BPM - Why do we have to wait so long for it?
Let’s face it. Mobile applications are here to stay. And they mean business! Gone are the days when iPhone Apps or Google Apps were for fun, or social networking. Increasingly, companies are building apps meant for serious business, designed to help their work-force and customers alike to improve their touch-point experience with the business.
Mobile apps face a serious challenge in being ‘too restrictive’. To quote Medhat Galal, If Business Process Management (BPM) is going to do for process what Google did for information, BPM must be mobile and always on. A good example is UPS or FedEx who have built their own ‘mobile BPM’ applications to meet their customers’ demands. Why can’t other companies do the same. The personnel working in the field only carries local information on his device (Laptop, Blackberry or even IPad). To a large extent they still remain locked out from the data which could help them access the most up to date information and close the meeting/sale successfully. “I will get back to you”, has a history of missed opportunities – ask any salesperson!
So what has prevented Mobile BPM to develop and be available for adoption. For one, the differing standards – Apple, versus Android versus Symbian versus RIM versus Windows Mobile versus.... has been a major barrier to adoption. Very recently Cordys has shown previews of mobile BPM for Google Apps that supports Smartphone. The smartphone support is enabled via a new Mobile Apps Composer offering, which allows users to design business processes for their smartphone. A good place to start building Mobile apps would be typically administrative and HR processes as they involve the review of limited amount of data that can be easily handled by mobiles. Imagine a senior executive logging on to the enterprise applications while waiting in an airport terminal or commuting to a meeting, and approving all the pending requests, leaves etc!!! Such a saving on time!
I believe the time is ripe for BPM vendors to take the step towards Mobile BPM. I hope to see that happening in the next couple of years!
Mobile apps face a serious challenge in being ‘too restrictive’. To quote Medhat Galal, If Business Process Management (BPM) is going to do for process what Google did for information, BPM must be mobile and always on. A good example is UPS or FedEx who have built their own ‘mobile BPM’ applications to meet their customers’ demands. Why can’t other companies do the same. The personnel working in the field only carries local information on his device (Laptop, Blackberry or even IPad). To a large extent they still remain locked out from the data which could help them access the most up to date information and close the meeting/sale successfully. “I will get back to you”, has a history of missed opportunities – ask any salesperson!
So what has prevented Mobile BPM to develop and be available for adoption. For one, the differing standards – Apple, versus Android versus Symbian versus RIM versus Windows Mobile versus.... has been a major barrier to adoption. Very recently Cordys has shown previews of mobile BPM for Google Apps that supports Smartphone. The smartphone support is enabled via a new Mobile Apps Composer offering, which allows users to design business processes for their smartphone. A good place to start building Mobile apps would be typically administrative and HR processes as they involve the review of limited amount of data that can be easily handled by mobiles. Imagine a senior executive logging on to the enterprise applications while waiting in an airport terminal or commuting to a meeting, and approving all the pending requests, leaves etc!!! Such a saving on time!
I believe the time is ripe for BPM vendors to take the step towards Mobile BPM. I hope to see that happening in the next couple of years!
Tuesday 12 October 2010
Have you analysed the business implications of Solvency II?
In a recently published report by Morgan Stanley and Oliver Wyman, the impact on Solvency II on an insurance organisation becomes increasingly clear.
The report uses their proprietary QIS5 model to analyse the impact of Solvency II on four fictitious companies – a life company, a non-life, a composite and a reinsurer. The key findings were:
The solvency ratios for the non-life oriented insurers show sharp declines under QIS 5;
Reinsurers are likely to see a major decline in reported solvency ratio, but demand for reinsurance should increase;
Being one of the largest regulatory programme till date, it is important to view Solvency II as a major catalyst for changing the traditional business models on insurance companies. An industry beset by declining investment returns, inefficient processes and legacy IT systems, need major overall in the way they do business in the future. The report rightly points out that the pace of strategic change will dramatically improve in the Solvency II world with the transparency brought about by the regulation. However at the same time, there exists a risk of the European insurers’ competitive advantage threatened by their ‘non-Solvency II’ competitors across the Atlantic!
Reinsurers are likely to see a major decline in reported solvency ratio, but demand for reinsurance should increase;
- For life, the major impact is for participating (with-profit) policies;
- The majority of the industry's capital requirement would come from a combination of market risk and participating contracts;
- Diversification benefits will also be a key driver of the Solvency II capital requirements; and
- European insurers may become competitively challenged in markets with "non-Solvency II equivalent" regimes.
Wednesday 6 October 2010
Managing Solvency II Programme: There’s more to it than a RAID!
Solvency II is by far the largest finance change programme undertaken by insurers in recent years. And, probably the most complex till date. But the complexity does not end there. Given the nature of change involved in delivering Solvency II and the timelines, the Solvency II Programme Director finds himself at loggerheads with other Business As Usual (BAU) projects and finance projects managers. An organisation cannot afford to wait for Solvency II to deliver compliance before it can initiate other changes – most changes need to happen simultaneously! And often, the deliverables are at cross purposes to each other.
The finance teams of UK insurers are grappling with some key changes in their current operating model – IFRS, MCEV proposed changes around reporting; implementation of TAS standards for actuarial reporting to name a few. These changes are directly impacting the deliverables of Solvency II workstream. Unless the proposed changes by the respective teams are discussed and agreed, insurance companies will waste significant time doubling the deliverables at the best case, or undoing previous deliverables at the worst.
The Solvency II programme suffers from an inherent weakness of not being able to define the exact deliverables for each of their work stream, as the requirements are still emerging. Two weeks ago, CEIOPS has delivered another set of documentation which are currently being analysed for impact by the actuaries. This ambiguity is of no great help to either the Solvency II Programme Director or the other finance change directors! The BAU functionaries have to perform their day-to-day role and they cannot wait indefinitely for Solvency II.
So how does one go about efficiently managing the change portfolio within finance?
My experience suggests developing an Impact Management Framework for this purpose. The framework is a simple tool to identify the current the future ‘conflicts’, map the conflicts and the overlapping areas, broker a possible mitigation plan and continually assess the tool and update it to the conclusion of the impact / dependency.
Impact Management Framework for Solvency II
Given the nature of Solvency II deliverables, it is potentially impacted by, and, in turn could impact a number of BAU functions/projects in an organisation. The proposed framework is a methodology to identify and manage the impacts. The framework is shown in a diagram below.
The framework consists of five steps:
Step 1: Identify
Identify a list of all current and future projects in the organisation. A good starting point is the Change Board or Portfolio Governance function which has a most up-to-date list of the projects. It is useful to validate the list with key functions such as IT, Business Change to ensure that the list is complete. The change function also has a list of future projects which have been approved.
Step 2: Investigate
Typically the starting list will be fairly long. It is not unusual to have more than 100 projects on the initial list. Use a first filter to eliminate those projects which has no potential impact on Solvency II. For example, system upgrades, site enhancements, version upgrades, changes in client facing documentations, changes impacting distributor commissions. Having put the list through the initial filter will give you a manageable list to begin.
Step 3: Assess
For the shortlisted project, investigate the scope of the project, the products/processes/systems impacted to assess if they have interdependence with Solvency II. This is the second filter. During this stage, I do an initial investigation, followed by a quick conversation with the Project Lead to validate my understanding.
At the end of Step 2, you will have a definite list of projects which have potential interdependence on Solvency II.
Step 4: Plan
During this stage, identify the exact areas of overlap between the two projects. The areas could be one of more of the following:
1. Impacting product valuations
2. Impacting financial reporting
3. Impacting financial processes
4. Modifying risk categories
5. Modelling changes
6. Changes to finance data mart
The list above is not exhaustive. You will need to modify the above list based on the functional organisation and the prevalent project life cycle in your organisation.
For the external projects (i.e., those other than solvency II), identify the areas of overlap, their delivery time line and the resource utilisation. The delivery timeline needs to be compared with that of the relevant work packet of Solvency II programme. The comparison should result in a mitigation plan with defined activities at pre-defined time to ensure that the interdependencies are tracked. Given the evolving requirements of Solvency II, a typical mitigation plan can be to reassess the interdependence. For those work packets within Solvency II where the requirements are clear, a mitigation plan can be picking up relevant deliverables of external project and including it within Solvency II deliveries.
Step 5: Mitigation
This step refers to activities in the future where Solvency II work packet manager and the external project manager need to re-assess the identified interdependencies. The mitigation plan should be included in the main Solvency II programme Project Plan to ensure their monitoring.
I have found it a good practice to be in regular contact with the change board to ensure that new projects are brought to my attention immediately. It is a relatively simple task to communicate the potential dependencies early in an external project’s plan, than doing so at a later date.
The list of dependencies does not end here. Solvency II programme need to be cognizant about the forthcoming papers from the European Regulator, resource availability among a host of potential dependencies. I will cover them in a later blog.
The finance teams of UK insurers are grappling with some key changes in their current operating model – IFRS, MCEV proposed changes around reporting; implementation of TAS standards for actuarial reporting to name a few. These changes are directly impacting the deliverables of Solvency II workstream. Unless the proposed changes by the respective teams are discussed and agreed, insurance companies will waste significant time doubling the deliverables at the best case, or undoing previous deliverables at the worst.
The Solvency II programme suffers from an inherent weakness of not being able to define the exact deliverables for each of their work stream, as the requirements are still emerging. Two weeks ago, CEIOPS has delivered another set of documentation which are currently being analysed for impact by the actuaries. This ambiguity is of no great help to either the Solvency II Programme Director or the other finance change directors! The BAU functionaries have to perform their day-to-day role and they cannot wait indefinitely for Solvency II.
So how does one go about efficiently managing the change portfolio within finance?
My experience suggests developing an Impact Management Framework for this purpose. The framework is a simple tool to identify the current the future ‘conflicts’, map the conflicts and the overlapping areas, broker a possible mitigation plan and continually assess the tool and update it to the conclusion of the impact / dependency.
Impact Management Framework for Solvency II
Given the nature of Solvency II deliverables, it is potentially impacted by, and, in turn could impact a number of BAU functions/projects in an organisation. The proposed framework is a methodology to identify and manage the impacts. The framework is shown in a diagram below.
The framework consists of five steps:
Step 1: Identify
Identify a list of all current and future projects in the organisation. A good starting point is the Change Board or Portfolio Governance function which has a most up-to-date list of the projects. It is useful to validate the list with key functions such as IT, Business Change to ensure that the list is complete. The change function also has a list of future projects which have been approved.
Step 2: Investigate
Typically the starting list will be fairly long. It is not unusual to have more than 100 projects on the initial list. Use a first filter to eliminate those projects which has no potential impact on Solvency II. For example, system upgrades, site enhancements, version upgrades, changes in client facing documentations, changes impacting distributor commissions. Having put the list through the initial filter will give you a manageable list to begin.
Step 3: Assess
For the shortlisted project, investigate the scope of the project, the products/processes/systems impacted to assess if they have interdependence with Solvency II. This is the second filter. During this stage, I do an initial investigation, followed by a quick conversation with the Project Lead to validate my understanding.
At the end of Step 2, you will have a definite list of projects which have potential interdependence on Solvency II.
Step 4: Plan
During this stage, identify the exact areas of overlap between the two projects. The areas could be one of more of the following:
1. Impacting product valuations
2. Impacting financial reporting
3. Impacting financial processes
4. Modifying risk categories
5. Modelling changes
6. Changes to finance data mart
The list above is not exhaustive. You will need to modify the above list based on the functional organisation and the prevalent project life cycle in your organisation.
For the external projects (i.e., those other than solvency II), identify the areas of overlap, their delivery time line and the resource utilisation. The delivery timeline needs to be compared with that of the relevant work packet of Solvency II programme. The comparison should result in a mitigation plan with defined activities at pre-defined time to ensure that the interdependencies are tracked. Given the evolving requirements of Solvency II, a typical mitigation plan can be to reassess the interdependence. For those work packets within Solvency II where the requirements are clear, a mitigation plan can be picking up relevant deliverables of external project and including it within Solvency II deliveries.
Step 5: Mitigation
This step refers to activities in the future where Solvency II work packet manager and the external project manager need to re-assess the identified interdependencies. The mitigation plan should be included in the main Solvency II programme Project Plan to ensure their monitoring.
I have found it a good practice to be in regular contact with the change board to ensure that new projects are brought to my attention immediately. It is a relatively simple task to communicate the potential dependencies early in an external project’s plan, than doing so at a later date.
The list of dependencies does not end here. Solvency II programme need to be cognizant about the forthcoming papers from the European Regulator, resource availability among a host of potential dependencies. I will cover them in a later blog.
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