Back in the late Noughties when Solvency II was first conceived, January 1st 2016 must have seemed a long way off. After being pushed back time and time again, this will at long last be the day when the European Solvency II directive comes into place. For
the insurance industry in the EU, deadline day is now only months away.
If all goes to plan, the EU directive will regulate insurers so that they are better protected against insolvency. The aim is to harmonise the regulations so that everyone is working together to avoid any financial shocks from unexpected large claims or
unplanned-for risks, and thus ensure that the end consumer is better protected.
This industry shake-up is long overdue. When we look back to the economic crash of 2008, it is clear that businesses were not ready to cushion their own fall. These new measures are put in place not just to protect the consumer but also to protect the insurer
themselves. It should ensure that even in a crisis situation, insurers will have enough capital to keep themselves solvent, even if the unexpected happens.
But is the insurance industry ready? There has been concerning evidence that the industry has been slow to respond and the deadline may cause problems for some.
Given how the timetable for Solvency II has been amended in the past, some insurers might have been hoping for the deadline to be extended. However, while the FCA and PRA have said publicly they want an orderly transition and are there to help, the current
deadline remains, despite these attempts to placate the industry.
So how can insurers realise the regulators’ desire for an orderly transition?
It is not possible to offer a tick-box solution, but there are some tools that can support a smoother, less troublesome approach to Solvency II compliance – for example, a new wave of technology designed with compliance specifically in mind is a good beginning.
A push towards modern platforms which have as their central design the need to be able to use and analyse data is needed, not just for Solvency II, but to transform the industry and bring it firmly into the 21st century. Getting at the data, and the quality
of that data, can be problematic at best with older systems, and a more modern approach will ensure the data is used correctly.
The new technology systems also need to be as flexible as possible so that insurers can adapt and succeed in the increasingly digital nature of the market landscape. With driverless cars already being prototyped, and homes controlled with the tap of an app,
the way people interact with the things around them is likely to change dramatically, and a flexible technology platform, designed with change and adaptability in mind, will keep insurers up to speed in this ever changing world.
While it has been a bone of contention for many in the industry, the extent to which Solvency II is a catalyst for modernisation will enable insurers to survive and thrive in a time of intense competition and regulatory scrutiny.