Solvency II; Is it about risk?
The Solvency II framework will without any doubt ensure that risks are more comprehensively managed by the insurance industry as a whole. The widely quoted challenge regarding data capture and system enhancements will also be a daunting challenge many insurers need to face. However, behind all of this there is a key notion that seems to be forgotten; it is also about creating a competitive edge!
Those insurers who manage to complete the Solvency II implementation well in advance of the deadline are more likely to face lower implementation costs in comparison with those that opt to start at a later date as consultants, regulators and the industry are all competing to acquire resources required for the transformation process. There is a pool of qualified Basel 2 experts that may be able to fill the need to some extent, however in particular the more specific actuarial skills seem very hard to come by. It can be expected that the implementation costs will increase as time goes by and competition for Solvency II resources will intensify. With this understanding in mind, Euro Insurances started its Solvency II preparations in 2009 with an in-depth gap analysis that was performed with the support of PriceWaterhouseCoopers. A key aspect of the cost analysis was consideration of hiring temporary external staff versus recruitment of permanent resources. Euro Insurances has decided on a mixed approach to staffing and has now identified a number of quick wins that will be implemented first.
Now well into the implementation, there seem to be a number of key lessons emerging from the Solvency II implementation to date that could be summarised as follows;
- Create top level buy-in early on and set up a clear project structure to ensure key decisions are taken in time and after the right level of consideration by all stakeholders to facilitate embedding of the changes in the organisation; Carefully consider the ‘make or buy’ decision for project resources; even when a certain level of uncertainty exists regarding the exact organisation chart post Solvency II, it may be well worth to take on board some of the Solvency II project team on a permanent basis;
- Break the project down into manageable sub-projects and ensure the deliverables are used to benefit the customer experience now
- A fit for purpose approach can be applied to Solvency II and a pragmatic approach can be applied to reach the required compliance levels whilst avoiding overly bureaucratic red tape.
- The Solvency II implementation could translate into a competitive advantage for early adopters as;
- Company can focus already on serving its customers whilst other insurers are still distracted by the Solvency II implementation;
- The costs of implementation are lower than with a late start, releasing funds that can be allocated to for example product development or improving customer service;
- There may be opportunities to take over portfolio’s from insurance companies that struggle to raise capital to continue to write their current books of business
In conclusion, daunting as it may have seemed at the out-set, the implementation of Solvency 2 for a medium size insurance company like Euro Insurances can be a very motivating project and has been used as a catalyst to accelerate the implementation of a range of quality improvements.
For more information contact Ray Foley, Commercial and Underwriting Manager.
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