Internal model preparedness and higher prices are also driving ERM programs
The impending implementation of Solvency II and the increasing expectations among rating agencies are driving insurers to continue to bolster their enterprise risk management (ERM) programs.
Results from a recent survey conducted by Towers Watson suggest that Solvency II remains the primary focal point for European insurers.
Towers Watson’s survey also indicated that the main concern of insurance organisations centred on the need for capital-raising, with 60% of respondents citing this as a potential concern.
A similar proportion of companies expressed concerns about changes in the relative attractiveness of existing products and probable higher prices to consumers.
Naren Persad, senior consultant at Towers Watson, said: “The survey notes that internal model preparedness is a concern, with only 10 percent of respondents believing that their internal models would currently pass the approval requirements.”
“This is likely to be one the greatest challenges facing companies and some markets have already put in place formalised processes for supervisors to assess and are likely to approve the internal models for companies before the start of Solvency II.”
Persad added: “With only two years until Solvency II takes effect across Europe, it is a positive sign that many insurers are thinking about its implications. Solvency II represents a challenge but also an opportunity for European insurers to improve their business performance.”
Another key finding in the survey is around the lack of available resources. According to the research over half of European insurers (53%) view people challenges as their greatest challenge in terms of implementing ERM.
Persad said: “We have seen a significant demand for skilled resources in Europe as companies continue their preparation for Solvency II, however only 23 per cent of respondents are focusing on skills/resource development as a priority."
"This is a particular problem as companies, supervisors and company advisors will all be competing for scarce resources at the same time. Companies should now be looking to utilise their own internal resources via training programmes and Solvency II project work to embed the knowledge within the organisation,” Persad continued.
Solvency II focuses on all aspects of risk management within companies, making a direct link between risk and capital requirements implications.
The new regulation will allow companies to make use of their own internal models for regulatory purposes, subject to meeting certain strict regulatory criteria.
These have the potential to provide competitive advantage for organisations through more tailored risk measurement and management.
