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.
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.
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
Quality Data Means Quality Decisions
Whenever any of us walks into our family doctor’s office for treatment or a routine checkup, one thing we expect is that the historic medical data the doctor possesses on us is complete, accurate and appropriate. If you previously suffered multiple fractures due to a road accident, your family doctor should already know about it. In case you are allergic to aspirin, too that should form part of your medical history. Such background data is crucial in ensuring that whatever drug prescriptions or lifestyle recommendations the doctor eventually delivers lead to better overall well being.