Solvency II Awareness Motivates Insurers’ IT Development in Asia

With an increasing awareness of the pending Solvency II insurance capital adequacy system in Europe, insurers in Asia -- and especially those in emerging markets -- are changing their financial reporting practices by introducing more information technology solutions in an effort to enhance internal risk management and achieve cost-effectiveness.

The new solvency system will involve a lot of financial information and data, as well as profit scenarios of insurers and reinsurers, raising concerns among insurance players about seeking a standard IT platform for data management, financial results aggregation and the reporting process, said Peter Haslebacher, executive vice president and chief operating officer of iWorks Asia Pacific under IT services company SunGard.

In Asia, insurers are now becoming more open to advanced technology solutions and looking for a standard platform that would allow them to cope with the volume of information and data, and to quickly access relevant data such as claims and pricing, to "increase their risk management catering to the regulatory requirements, as well as for their own rapid business growth," said Hong Kong-based Haslebacher in an interview with BestWeek Asia/Pacific.

Asia Challenge

Among Asian countries, Haslebacher noted that in well-developed markets like Hong Kong, insurers are looking more to Europe for best operations practices, as the European Union gets set to implement the new Solvency II regime Jan. 1, 2013.

International players with Asian headquarters in Hong Kong will introduce an IT system that helps them "consolidate figures from different countries' operations to prepare group financial results," he said.

For developing countries in the region, Haslebacher sees a gap between global and domestic Asian insurance players as "automatic versus manual" financial reporting practices. Several insurers in Asia are still using a primitive method to complete the financial reporting process. In order to meet increasing regulatory needs, Haslebacher said "strategic discussions on how to help narrow the gap will be increased."

With China and India, the two emerging markets in Asia, Haslebacher said an efficient IT system that shows the distribution performance of new products has had huge demand among insurers.

He explained that "life insurers usually bring a new product to the market on average in three months, while their rival players also copy the product very soon." An effective IT system can help them keep track of the latest market developments, he said.

According to Haslebacher, insurers in these countries also search for a "standard platform" that can provide cost-effective IT services to help manage their accounting, insurance products and policies.

Chinese and Indian insurers are looking to optimize their data management with a fully automatic IT system, and plan to enhance their internal financial and operational risk management to reach regulatory compliance, he said.

Haslebacher said "mobile banking and tele-insurance," which build up distribution channels with a large number of mobile phone users, will be a future market trend. He noted bancassurance will also consider marketing complicated life insurance products on top of selling simple and basic insurance products.

Solvency II

The Solvency II framework is the next generation of supervisory rules for insurance and reinsurance companies in the EU, and is designed to ensure insurance and reinsurance undertakings are financially sound and can withstand adverse events to protect policyholders and the stability of the overall financial system.

In addition to capital requirements (Pillar 1), insurers and reinsurers will be required to meet qualitative requirements relating to governance and risk management (Pillar 2), and to regularly disclose information to supervisors and to the public (Pillar 3) under the Solvency II system, noted the EU.

In the run-up to the Solvency II regime, market consultants found that a gap has opened up for most insurers between expectations for IT's provision of risk-based measures related to their business and what is actually being delivered by their Solvency II programs.

Many insurers focus their Solvency II programs on an "upgrade" of risk modeling capabilities, which causes "model-centric silo thinking" that neglects to address the nature of the required change, including "go beyond model-centric silos, embrace the uncertainty with an iterative program that can cope with a moving target, appreciate the brownfield nature of the change, and the overarching cultural change that the new regime requires," said Dietmar KottMann, partner at Oliver Wyman, a European insurance consultancy, in a research report.

"The resulting gap between expectations toward risk technology and the actual delivery is acutely endangering the success of several Solvency II projects -- just as it caused some Basel II [banking] projects to run into serious trouble," noted KottMann.

To better cope with this problem, insurers need to "define a clear roadmap" to get ready for the new system before selecting which IT vendors to work with, said Nicolas Michellod, senior analyst at consultancy Celent in a report.

To hear the interview with Haslebacher, go to http://www.ambest.com/media/media.asp?RC=177366.

(By Rebecca Ng, Hong Kong news editor: [email protected])