Regulation is not commonly associated with
setting pulses racing, but without doubt it is the hottest topic in
the international life insurance sector today as providers brace
themselves for the torrent of regulation that is Solvency II, the
EU’s gender ruling and the Retail Distribution Review in the
UK.
Solvency II is the regulatory regime that has
grabbed many of the headlines in recent times and that is why this
issue of Life Insurance International drills down
into the mechanics of the regulation to explain its expected impact
on life insurers with a four-page special.
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In detailing the implications of Solvency II,
it is easy to forget that this blueprint for insurance regulation
worldwide has been over 10 years in the making.
It might be logical to then expect the
majority of insurers to be thoroughly prepared and briefed on the
nuts and bolts of the new regime.
Certainly, my discussions with life insurers,
vendors and consultants reveal that the UK and European life
insurance companies are working hard to prepare for the rules in
the realisation that it will cost millions of pounds to fully
implement.
However, it is worrying to hear that very few
people really understand what data quality is regarding the
requirements for Solvency II.
Given that Solvency II requires data to be
accurate, complete and appropriate, the fact that to date there are
no common standards for defining what is meant by accurate,
complete and appropriate data, and this aspect is “essentially
guesswork” – to quote one senior figure – is a major cause for
concern.
It has been said that the overall costs for
Solvency II for the largest insurers will exceed £100m ($1.56m) and
these are typically for the largest composite insurers.
Costly regime
Life Insurance International
has also been told the overall cost of Solvency II for large life
insurers will be between £30m and £60m
If the cost of Solvency II was not bad enough,
the implementation deadline of Solvency II is now in the hands of
policymakers involving the European Parliament, the European
Council of Ministers and the European Commission.
“There is no appetite for delay among large
insurers,” says one expert, but the reality is that there is a
delay and it is costing insurers.
For example, a Deloitte report highlights that
almost 75% of insurers say implementation setbacks have taken a
toll on their original budgets, and 42% will have to increase
budgets by more than 5% as a result of the delay to full
implementation of Solvency II to 1 January 2014.
Nobody wants Solvency II, or any other piece
of regulation, to be hastily ‘cobbled together’ just because senior
politicians or figures have demanded it.
Indeed, it could be argued why the insurance
industry should have to adapt to an entirely new regulatory regime
when banks were the main culprits in the financial crisis.
However, the reality is that regulatory change
is on its way. End of.
The industry therefore needs to be properly
prepared for the challenges and opportunities this change will
usher in.
What life insurers want is direction, not
dithering from policymakers, and it is up to the industry to work
together and lobby hard to achieve this.
