Towers Watson study warns that companies are cutting corners

Many insurers have underestimated the time that the QIS (Quantitative Impact Study )5 will take to conduct, according to research by Towers Watson.

The consultancy found that almost half (45%) of insurers operating in the UK believed that taking part in the dry run exercise for the Solvency II directive would take 100 person days or less.

One hundred days is the average amount of time companies spent on QIS4 and far less than the amount of time currently spent on preparing results under the much less sophisticated Solvency I regime, says Towers Watson.

Naren Persad, senior consultant at Towers Watson, said: "Insurers operating in the UK need to beware of significantly underestimating the time required for this exercise and we advise that they avoid leaving all the work until August.

“Given that a draft specification is already available, they should be conducting significant preparatory work ahead of the summer, in the order of 150 hours on average, with a particular focus on the availability of the necessary data and the alignment of the existing models with the QIS methodology. Organisations that leave all the work until August may see some cancelled summer holidays."

Towers Watson's research also found that more than half of insurance companies surveyed (57%) were cutting corners by planning an approximate approach to their QIS5 exercises.

Persad said QIS5 provided insurers with an important opportunity to identify problem areas in terms of the insurer's practical ability to produce the information they will need to furnish for Solvency II, when it is implemented.

He said: “It can be easy to gloss over the detail of the 456 pages of the specification but stakeholders such as supervisors and the European Commission are expecting companies to complete QIS5 at a 'near production standard' as this ensures that the requirements being developed are achievable for companies in practice."

The other findings of Towers Watson's Solvency II survey are:

*Thirty per cent of insurers said that determining the risk margin would be the most challenging aspect of the Solvency II balance sheet, followed closely by determining best estimate liability (29%)

*Only seven per cent of insurers were definitely planning to publish their QIS5 results, with 58% saying that they were not intending to publish. The remaining 35% said they would publish results only if peers did so first

The research was based on a survey carried out in April of 146 representatives from a range of life and non-life insurers operating in the UK.

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