Insurers overseas are facing a maelstrom of uncertainty as regulators simultaneously overhaul rules governing risk and capital management, accounting and credit ratings in response to Solvency II.
In August South African insurers were warned by accounting experts that they would need to overhaul their systems, data modeling and performance reporting in the wake of new accounting standards which could result in significant and costly changes in system infrastructure.
This comes on the back of European regulatory reform with the introduction of the proposed Solvency II regime in 2012. The Solvency II project is intended to replace outdated European insurance legislation with a consolidated set of requirements for supervision, capital, risk management and reporting.
Rhys Collins, Head of African Operations for SSP, says generally the reform is welcomed by most and will provide Europe with the opportunity to take a global lead in the regulation of insurance.
With the advent of Solvency II, insurers have to prepare themselves for a consistent economic evaluation of all risks. Besides greater emphasis on sound risk management, it is expected that small or specialist insurers in particular will face a need for more risk capital.
With Solvency II, more precise monitoring and controlling of risks will become standard practice. Collins believes that South African insurers may soon follow their European counterparts and should start evaluating their current systems. “Data is the heart of any risk management plan and to be able to prove that the information is credible and reliable is key to improving confidence in solvency management and achieving better capital adequacy. The impending insurance laws amendment act will place further priority in ensuring data is accurate and reliable.
At present many local insurers have invested heavily in back office systems and are concerned about having to replace entire legacy systems for a number of reasons – consolidation, compliance, distribution, flexibility, speed-to-market etc. Larger insurers are typically looking for a solution that can easily wrap around their existing system to allow them to retain its existing back office processes and at the same time respond to these market demands.
Collins concludes, “The potential reform around the corner in accounting standards is a classic example of how market forces can force IT change at any time and a future-proofed IT strategy that can easily respond to these forces is the best way ahead. Ideally it should be able to upgrade in an evolutionary process, rather than require a complete replacement and provide a modular approach to achieving business objectives.”
Article provided by: FAnews