The recent announcement that troubled Liechtenstein insurer Gable had gone into administration blaming the pressures of Solvency II raises the question as to whether others insurers will follow.
There is no doubt that SII is placing a huge pressure on the insurance market, both from a reporting and capital adequacy point of view. The burden imposed on insurers to understand and quantify their potential liabilities is huge and will certainly keep a small army of actuaries busy for many years to come. Getting this wrong could have a massive impact on the amount of capital insurers will need to carry and potentially put their whole survival at risk. Smaller, unrated and less well capitalised insurers must be having sleepless nights wondering whether they can survive in this new super-regulated environment.
With SII Pillar 3 coming into full force on 1st January 2017 insurers are now grappling with the thorny issue of reporting. Pillar 3 is all about reporting and disclosure and places an obligation on the market to publish details of the risks facing them, capital adequacy and risk management.
For many large insurers with multiple legacy software systems brought together as a result of numerous mergers and acquisitions, this certainly poses challenges. How do you get all that information collated in one location to enable you to properly report with a degree of certainty and accuracy?
In the area of delegated authorities this problem is magnified due to the fact that coverholder/MGA reporting has for many years been at best sporadic and at worst non-existent. Educating coverholders to report in a detailed and consistent way with enough depth and accuracy to enable carriers to fully understand where their risk lies is proving to be very testing. Even when the correct amount of information is being provided, it is seldom in a consistent format, meaning that the data then needs to be cleansed, validated and standardised by the recipient. This is something that only a small portion of the market has yet to fully accomplish with any degree of certainty or accuracy.
Products such as VIPR’s Intrali can certainly help with this because it enables data to be imported in multiple formats and then standardised, cleansed and validated against the binder terms. Any breaches of the contract can then be highlighted and dealt with which means insurers can be confident they understand their risks. Furthermore, data can be automatically exported into the required Solvency II format, making reporting a quick and simple task.
So, the message to those who are still grappling with this problem, is to take action now before the regulators do it for you. Time is rapidly running out and with severe financial penalties for non-compliance and further sanctions for continued breaches, it’s an issue that has to be resolved without delay.
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