Company boards untrained on Solvency II, says KPMG

Most firms are not currently doing enough to train their boards on Solvency II, jeopardising their opportunity to gain a competitive advantage and their ability to ensure regulatory compliance, a report released by KPMG today has revealed.

The report entitled Bringing Solvency II alive in the boardroom said that 80% of boards had received less than 15 hours of training and only 19% are planning to increase the level of training over the next year.

KPMG head of Solvency II Phil Smart said: “While the exact amount of training required will vary from one firm to another, the acid test is whether the board can collectively demonstrate they have the appropriate Solvency II skills to drive forward their businesses under the new regime and the necessary understanding of the requirements.

“Less than 15 hours is unlikely to be enough to ensure the required level of knowledge for most organisations given the changes made to prepare for Solvency II.

“The regulators will be asking tougher questions of employees in key roles to test their understanding and application of the regime. Solvency II’s reach goes far beyond the technical teams now and the potential consequences of non-compliance could be severe.

“In addition to general compliance, the commercial benefits that effective Solvency II training can deliver should not be underestimated.  A greater understanding of the business using Solvency II metrics, as well as relevant regulations, will deliver a real competitive advantage for businesses by helping inform strategic decision making particularly with regard to M&A targeting and divestment activity.”

KPMG’s report recommends that specific Solvency II objectives should be included in board members’ development plans.

KPMG’s risk management team director Paul Brenchley said: “There needs to be greater emphasis on embedding change across the entire organisation. The tone must be set from the top and organisational culture and behaviour need to be considered alongside technical requirements.

“For example, including Solvency II specific objectives in executives’ performance measures – and holding them accountable – will help encourage these behavioural changes. Currently less than half (44%) of firms are doing this. Our advice is that with less than 18 months to go, businesses should be looking now to incorporate Solvency II measures, were relevant, into next years’ objective setting to ‘dry-run’ them.”

On the other hand, the report found that 90% of insurers have, at the very least, started their board training with one third having rolled out company-wide training programmes.

Brenchley continued: “As the final implementation date for Solvency II fast approaches, firms cannot afford to become complacent. The FSA expects a lot from the board and they must ensure they are ready to implement this change in a challenging environment.”