Solvency II likely to prompt big IT spending

Solvency II implementation will likely trigger European insurers to invest between EUR600 million and EUR900 million (between Cdn$944 million and Cdn$1.5 billion) in new IT projects, Celent says in a new report, ‘Solvency II: Overview and Impact on IT.’
With the emergence of Solvency II, risk management functions will have to be incorporated into an integrated system supporting analysis across different risk types and facilitating strategic decision-making, the report says.
“At present, many insurers have dedicated risk functions for each type of risk (insurance risk, market risk, liquidity risk, credit risk, and operational risk) in place,” researchers wrote. “This fragmentation prevents transparency and relevant information flow between the important actors of the decision-making process, notably executive board members and CROs.”
Implementing an efficient risk management system that integrates all types of risks will enable CROs to get a comprehensive picture of all actual risk exposures and provide the executive board with a relevant set of data and scenarios, Celent suggests.
Its report encourages insurance companies to implement a risk-oriented IT architecture that emphasizes risk policies, risk appetite, governance guidelines and standards.
“Solvency II will certainly contribute to a greater number of integration initiatives in the near future,” the report says. “Celent believes that general insurers might use this opportunity to abandon their legacy systems, but they will have to carefully assess the risks linked with this initiative and especially its consequences on data.”