Aon has issued a bulletin urging European Union insurers to “learn from the work undertaken by their banking colleagues in implementing the Basel II accord and start preparing for Solvency II now.”
The statement follows a roundtable discussion, hosted by Aon in London, at which a number of “leading insurers….were encouraged by a panel of speakers to view the impending regulations as a chance to create wider business opportunities.”
Solvency II, which is now scheduled to come into force in 2012, will replace the current financial standards applicable to the EU’s insurance industry with a more complex, risk based system (See IJ web site https://www.insurancejournal.com/news/international/2008/05/08/89815.htm and related articles.)
Aon urged insurers, however, to take steps to “influence the drafting of the legislative text now before the process begins in earnest in 2009. Comparing the lead up to Basel II for banks, a recurring theme from the speakers was that many financial institutions found the process at the time much more complex and time-consuming to plan and implement than anticipated, with a requirement for significantly more resource than expected.”
Aon recommended the following actions:
— identify and secure an executive level sponsor within your business;
— bring together a team to lead the project that has the necessary skill sets, including IT and risk professionals as well as project management;
— look at the way in which your organization collates data on operational risk loss events and challenge yourselves to improve its granularity;
— engage in a constructive debate with the FSA and other regulators to develop the focus and implementation of the legislation – help shape Solvency II;
— be collaborative and be prepared to develop, share and implement risk models as an industry;
— look to harness the insurance policies currently purchased within the operational risk frameworks in your firm.
Implementing these initiatives “will lead to better decision making, improvements to the risk management process, cost efficiencies and potential capital relief through the ICAS procedure,” said Aon.
Tony Hills, director at Aon’s financial institutions team, commented: “Solvency II presents a significant challenge to the industry, especially with the process for drafting the legislative text due to start in 2009. And with implementation due in 2012, businesses in the sector need to start preparing for this now. As with previous regulatory frameworks, there are considerable opportunities available and it will be interesting to see which businesses are in a position to take advantage of them.
“We hosted the roundtable to raise awareness and communicate the urgency of starting to prepare for the new regulation. We want to help insurers better understand what their peers are doing and to establish a forum to share best practice.”
Source: Aon Corp. – www.aon.com