The word on the street is that local insurance companies need to start taking Solvency II as a standard seriously, as deadlines for European companies fast approaches.
On a recent visit to South Africa, Insurance risk expert Thomas Djursoe, EMEA insurance sales director at SAS Institute, warned local companies that they would not exempt from many of the global compliance and risk standards outlined in the impending Solvency II review.
Solvency II is a fundamental review of the capital adequacy regime for the European insurance industry. The fundamental purpose of this legislation is to protect policyholders and prevent a future financial crisis in the European insurance industry by requiring insurers to implement sound risk management practices.
“The European Insurance industry has been aware that Solvency II is going to hit them in 2012 or 2013 when the economy is expected to buoy back, but few have embraced the notion with as much gusto as the banks approached Basel II,” says Djursoe. “From my experience, many insurers know they need to adopt the practices – but they just don’t have the programmes in place to get them there.”
Solvency II replaces the current prudential regulation with risk- based capital requirements based on the economic value of the total balance sheet. This will ensure financial soundness of insurance companies to not only protect policyholders’ interest but also increase competition in the EU insurance market. In addition, Solvency II also should make it easier for firms to do business across the EU as the current patchwork of varying local standards will be replaced by more harmonised requirements. And in turn the globe.
With more than 60 insurance companies throughout Europe turning to Djursoe and his team at SAS for help with their needs, he says there is an awakening amongst companies to get their houses in order. The starting point of which is ensuring that their data is in a state where it can be used for more effective risk management, this includes the ability to manage operational, internal and external market related risk issues.
“In the Nordic regions, as an example, clients have accepted that between 60% and 70% of a risk project will rely on ensuring their data is ready. But it is not about building large new systems to house this data, but rather having the right data in the right place, such as a risk mart, that then integrates seamlessly into existing systems and processes,” he says.
“The key word is integration, and we have learnt that it is imperative to be able to pair with third party applications tailor-made for the insurance industry in order for us to be able to effectively assist our clients with their Solvency II requirements.”
But while regulations like Solvency II are very specifically geared for the European market, Djursoe spent much of his time in South Africa speaking to local insurers about their plans to comply with global regulations. Finding out where they are headed and if they did in fact have any plans at all.
Based on his experiences, Djursoe notes: “From what I can gauge the South African market, while they know they don’t have to comply to Solvency II or in fact SOX, are acting maturely and still want to embrace global best practices. Insurers here are very keen to start preparing their own systems to be able to cope with the potential requirements of the review – and are exploring risk management solutions and in turn analytics that will help them achieve this."