18 September 2014

Risk.net: Insurers underestimating Pillar III reporting demands

Smaller insurance firms are underestimating the strain on their reporting processes arising from Solvency II Pillar III requirements. Insurers should replace legacy systems that are ill-equipped to cope with the frequent changes to reporting requirements in 2016.

Mutual insurers in the UK are among those less likely to have grasped the magnitude of change expected when Solvency II goes live. Martin Shaw, Lincolnshire-based chief executive of the Association of Financial Mutuals, says: "Smaller mutuals have not rushed to set up solutions yet for reporting, as most of the PRA focus has been on the larger insurers. Hence planning might be fairly rudimentary at this stage, though some of our members have begun to consider whether there are any off-the-shelf solutions that they can collaborate on, to replace or supplement their existing solutions."

But technology providers stress that the perception that Pillar III reporting will be simple is illusory. Edward Kennedy, Solvency II Specialist at Wolters Kluwer Financial Services, a finance, risk and reporting solutions company, says: "It's quite staggering the number of insurers, particularly the small to medium-sized, that say ‘we are a simple business, we know our risks, so we don't see reporting as being complicated for us'.

Larger insurers are not immune to these issues, either. Royal London Group is still developing its technology infrastructure for Pillar III and has yet to choose a provider, according to Gary Warman, London-based head of risk management. He explains the firm is looking to implement a 'hub-and-spoke" approach where a centralised data warehouse is used to supply different reporting templates for statutory and internal purposes, and for inclusion in the Own Risk and Solvency Assessment: "This work remains in the ‘embryonic' stage," he says.

"The main challenge is around future-proofing our reporting systems. To the extent that any changes to regulation are unforeseen, we have the capacity to minimise the impact, identify what specific new requirements we need to accommodate and alter the relevant data feeds without having to change the wider system," he adds.

Mutual insurer Reliance also says future-proofing reporting is a priority. Cara Whatford, financial controller at Reliance in Tunbridge Wells, says: "While we've not yet decided exactly which software solution to use for reporting under Solvency II, one aspect that we are ensuring in our search is that the provider will be maintaining updates in regulation both at the European and national level."

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