43 percent expect compliance to cost them less than EUR 5 million Nearly all expect compliance to increase stakeholder confidence in risk control and management
More than three-quarters of large European insurers expect to
spend less than EUR 25 million through 2012 on Solvency II compliance,
with more than half of those expecting to spend less than EUR 5
million, according to results of a survey released today by Accenture
(NYSE: ACN). Specifically, one-third of the insurers surveyed said
they expect to spend between EUR 5 million and EUR 25 millions on such
compliance, with an even greater amount - 43 percent - saying they
expect to spend less than EUR 5 million.
The European Union´s Solvency II directive calls for a common set
of solvency regulations for insurers across Europe by 2012, including
the enactment of new rules regarding the levels of capital that EU
insurers must set aside to cover their combined risks and liabilities.
Considering Solvency II in the larger context of strengthening
their enterprise, three-quarters (75 percent) of respondents said they
believe that their compliance investment will support their business
needs. More specifically, 94 percent said they believe it will
increase stakeholders´ confidence in risk control and management, 88
percent said they expect it to increase stakeholders´ confidence in
the insurers´ capital reserves, and 85 percent said they expect it to
provide enhanced capital management.
"Insurers expect to spend far less to comply with Solvency II than
banks expected to spend to comply with Basel II requirements(1)," said
Eva Dewor, a senior executive in Accenture´s Insurance practice.
"While achieving Solvency II compliance with the lowest cost possible
might be an acceptable strategy for some insurers, they should be
aware that a compliance-only approach, without the necessary
investment in risk management for certain core business processes,
won´t enable them to reap the benefits they expect or to anticipate
crisis situations."
Another key finding of the survey: Less than 20 percent of the
insurers surveyed said they consider themselves well prepared for the
start of Solvency II. Processes, IT systems and risk quantification
and modeling capabilities are the areas where they see the most
significant need for improvement.
The survey also found that insurers believe that many of their
core risk-management capabilities need to be enhanced. The core
capabilities where respondents identified the most significant need
for improvement were risk-based product pricing (cited by 89 percent
of respondents), the integration of risk management and governance
into decision-making processes (80 percent), underwriting portfolio
management (71 percent), asset and liability management (70 percent),
and asset portfolio management capabilities (63 percent).
In addition, while the vast majority (93 percent) of respondents
said they believe that Solvency II will increase the importance of
risk-management capabilities, a significant number said that their
organization needs to enhance their risk infrastructure in order to
better identify, assess, quantify and monitor risks. Specifically, 86
percent of respondents said that their organization´s risk culture and
quantitative risk management needed to be improved, and 79 percent
said that their risk control capability and embedded risk management
needed to be improved.
"European insurers believe that Solvency II will give them a
competitive edge, but our findings indicate that many companies still
don´t have the necessary risk-management basics," said Dewor. "To take
advantage of Solvency II, insurers must better integrate risk
management and governance into their decision-making processes while
improving their portfolio-optimization and pricing capabilities."
Among the survey´s other key findings:
-- Positive impact expected. Nearly all (98 percent) of the
insurers surveyed said they expect Solvency II to have an
overall positive impact on the insurance industry, and 95
percent said they expect a positive impact on their company.
-- An increasing mobilization for Solvency II. Nine in 10 (89
percent) of the insurers surveyed said they have participated
in the third Solvency II quantitative impact study (QIS 3),
compared with 73 percent who said they participated in the
second impact study (QIS 2) and 50 percent who said they
participated in the first impact study (QIS 1). This shows
that the European Insurance industry is increasingly involved
in the consultation process that the Committee of European
Insurance and Occupational Pensions Supervisors (CEIOPS) has
initiated to test the impact of the Solvency II directive.
-- An increasing number of insurers are moving swiftly in
preparation for Solvency II. Although the date of final text
of the directive has been revised and is now expected in 2010
with implementation not likely until 2012, two-thirds (66
percent) of the insurers surveyed said they have already
enacted formal programs to plan and mobilize for Solvency II,
compared with only 49 percent of respondents in a similar
survey Accenture conducted in 2006.
-- Internal models are preferred. The vast majority (93 percent)
of the insurers said they plan to use their own internal
models instead of the standard formulas provided by the
Solvency II regulators for calculating their solvency capital
requirements.
-- Lack of resources is a key issue. When asked why they have not
participated in all of the QIS, the most-cited answer was the
lack of resources, mentioned by 70 percent of respondents. For
insurers that have participated in at least two of the QIS,
the second-most-cited answer was also the lack of resources,
mentioned by 46 percent of respondents.
-- A wave of merger and acquisition activity is expected. More
than four-fifths (84 percent) of respondents said they expect
the implementation of Solvency II to increase consolidation in
the insurance industry.
-- Small insurance companies will suffer the most. Four in five
respondents (82 percent) said they foresee small insurers as
the likely losers from the Solvency II directive, while the
same number (82 percent) said they believe large companies
will be among the winners.
Methodology
To assess European insurance firms´ response to Solvency II,
Accenture surveyed 44 large European insurance firms, predominantly
life and property & casualty insurers, in September and October 2007.
Roughly two-thirds of the life insurance companies reported gross
annual premiums of more than EUR 1 billion, and three-quarters of P&C
insurers reported premium income of more than EUR 1 billion. Of the 44
insurers surveyed, 10 are based in each of the United Kingdom, Germany
and France; four are based in each of Spain and Italy; three are based
in Sweden; and one is based in each of Finland, Norway and Denmark.
About Accenture
Accenture is a global management consulting, technology services
and outsourcing company. Combining unparalleled experience,
comprehensive capabilities across all industries and business
functions, and extensive research on the world´s most successful
companies, Accenture collaborates with clients to help them become
high-performance businesses and governments. With more than 175,000
people in 49 countries, the company generated net revenues of USD
19.70 billion for the fiscal year ended Aug. 31, 2007. Its home page
is www.accenture.com.
(1) In a banking survey Accenture conducted in 2005, 56 percent of
the banks surveyed said they expected to spend in excess of EUR 25
million through 2007 on Basel II compliance, the revised international
capital framework similar to the Solvency II directive but applicable
to the banking industry.
