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Cost of Solvency II remains a major concern for insurance industry: U.K. survey


July 9, 2014   by Canadian Underwriter


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Despite acceptance of the inevitable, a new survey out of the United Kingdom indicates the cost of Solvency II remains a major concern for insurance industry.

Just 6% of respondents to the survey by business and financial advisor Grant Thornton UK LLP report they believe the costs of Solvency II are “reasonable.” That compares to 76% of respondents who consider the costs to be disproportionate and 65% who say the value added by Solvency II will not justify the expense incurred, notes a statement issued Wednesday by Grant Thornton UK.

Respondents indicate, however, that concerns revolve around more than cost. In all, 77% of those taking part in the survey say Solvency II is using up valuable resources that could be far better utilized in other areas, and 62% of respondents feel that associated preparations are distracting senior management from the day-to-day running of their business.

“Increasingly, the sector is begrudgingly accepting Solvency II as a ‘necessary evil’, and recognizing that it will bring some benefits,” Simon Sheaf, head of actuarial and risk at Grant Thornton UK, says in the statement.

“However, it is clear that they do not believe that those benefits will be significant enough to justify the costs. The volume of work and resources that have gone into preparations for Solvency II compliance have been astounding and insurers have substantial reservations regarding the impact this has had on their businesses,” Sheaf continues.

Grant Thornton UK notes that since the last such survey in 2012, a greater proportion of respondents say they believe Solvency II is the most appropriate way to run their business.

This proportion increased from one in four participants in 2012 to one in three this year. As well, respondents indicating Solvency II is a “necessary evil” has increased from 27% to 44%.

What has not changed, however, is respondents’ view of the most significant constraints for the insurance market in implementing Solvency II: ambiguity over the regime’s requirements and a lack of resources.

Respondents also point to data issues, a lack of understanding of the new regime and insufficient board engagement as other barriers to implementation, the statement notes.

“The industry has largely been in favour of the principles behind Solvency II for some time. However, the opacity around implementation deadlines and precise requirements are continuing to make the pill-swallowing an even more bitter exercise,” Sheaf suggests.

“Businesses rely on certainty, and despite the role of risk in the insurance industry, the sector still feels as though it’s being unnecessarily burdened by the complexities of Solvency II,” he adds.

The new implementation date for Solvency II is expected to be Jan. 1, 2016.


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