If all processes run on schedule, the insurance industry in the European Union will be staring at new regulation effective 2014. The new directive, Solvency 2, is meant to plug gaps present in its 1973 predecessor, Solvency I – primarily better risk management as well as correcting the inability of the first directive to lead to the harmonization of insurer supervision among member countries. Of course, the need for Solvency 2 has been further expedited by the events of 2008 where insurance companies were hit just as much as banks. For instance, the American International Group (AIG) had to be saved via a $185 billion US government bailout – the largest any US financial institution received.
With the coming into effect of UCITS IV (Undertakings for Collective Investment in Transferable Securities) in July 2011, one thing is for sure – fund managers in the European Union have had to evolve with the fast changing regulatory environment. And if past respect for UCITS funds in other parts of the world such as Asia is anything to go by, it is only a matter of time before the standards outlined in the new directive become de facto best practice in markets outside the European Union.
Solvency II has 3 pillars – Pillar I that address capital requirements, Pillar II that is focused on workflow, governance and audit, while Pillar 3 details the framework for reporting. Unsurprisingly, Pillar I has attracted the most attention with insurers evaluating their entire business to determine what the new capital requirements will entail. But the significance of Pillar 2 and 3 is gradually dawning on the industry as institutions realize that compliance with these aspects will be just as important.
No other industry in the world experiences as much change as technology does. True to form, data warehousing as we know it is no longer what it was 5 or 10 years ago. New demands from customers, businesses and regulators continue to push the envelope on data warehouse capability and flexibility. The emergence of what is often referred to as ‘big data’ (terabytes of business information belonging to or under the custody of a single organisation) has introduced substantial challenges for businesses keen on staying on top of spiralling data volume, speed and complexity.
2007 to 2009 is a period that will remain etched in the minds of financial industry policy makers for years to come. Complex financial instruments, wrongly priced risks coupled with pressure to churn ever higher employee bonuses and bank profits all combined to create the biggest financial crisis since the Great Depression. The US and EU financial markets, once assumed impregnable, faced the real possibility of collapse pulling down the global economy in the process. As hundreds of billions of dollars in government bailouts were pumped into banks and insurance companies considered ‘too big to fail’, regulators had to come to grips with the fact that the Basel II guideline on bank risk management had loopholes and inadequacies that had to be addressed to prevent a recurrence. And with that, Basel III was born.
The data warehouse market has seen substantial growth over the last 2-3 years despite the difficult economic conditions in the world’s more developed economies. Tech giants such as Microsoft, EMC, Oracle, IBM and Teradata have either rolled out new data warehouse appliances or upgraded their existing product lines.
The expansion of the data warehouse space during such tough times is largely due to a growing realization of the business value and competitive advantage such technology delivers. This business value is in the form of efficient analytics, better business intelligence, ease of forecasting and compliance with regulatory reporting requirements. In fact, the data warehouse has today become mission-critical infrastructure in many businesses.
Just how expensive is Solvency II? Well, if the UK’s Financial Services Authority (FSA) is to be believed, the anticipated cost of new technology and external consultants necessary for compliance is likely to exceed US $3 billion. This is a substantial expense for many European insurance firms especially when you consider that 1 in 10 do not currently satisfy the envisaged capital requirements. Whereas the deadline has been pushed back a couple of times, there is no dodging Solvency II compliance for insurers in Europe. Continue reading