Avoid a reporting crisis

Many European insurers’ existing financial and capital reporting processes are becoming increasingly unworkable and unsustainable in the face of burgeoning regulatory and accounting demands. Process transformation, rather than constant fire-fighting, is emerging as the only long-term solution.

The Solvency II Directive has unleashed a weight of new reporting requirements on European insurers in general, and life insurers in particular, in recent years. And the recently announced IFRS17 global accounting standard will only tip the scales further as companies are forced to prepare for the 2021 implementation date.

Many companies responded to Solvency II by patching up their reporting process to keep pace with day-to-day demands

Many companies responded to Solvency II by patching up their reporting process to keep pace with day-to-day demands. The result is often a burdensome reporting environment that continues to rely extensively on manual effort to compile the various inputs, step through a series of calculations, and generate output reports in multiple formats.

Underlying issues related to things like the time involved, resource inefficiency, over-reliance on key individuals, lack of controls and governance, limited validation, and rising costs largely had to take a back seat as being ready for Solvency II took priority. But, with some companies admitting their processes are on the verge of needing life support, and with deadlines shrinking further, it is time to try and bring the situation under control.

The road to transformation

Solutions are complicated by the fact that process transformation projects can be notoriously difficult, not to mention expensive in their own right. Some bad market experience has also undoubtedly caused hesitation.

Actuaries now spend almost all their time on value-add activities rather than production with automated governance and audit trails

Our experience of working with clients that have already taken steps to initiate and develop such projects, and observation of what others have done or are doing, has shown us that successful transformation projects involve three essential and overlapping elements – effective tools (systems), engaged people and a fit-for-purpose process. And a blend of all three is needed, whether at the beginning (to enhance the chance of success), during (to manage it effectively), or at the end (to ensure the good work continues) of a project.

This approach is paying dividends for UK life insurer Chesnara. After Willis Towers Watson worked with the company to develop models and processes ready for Solvency II reporting under an outsourcing contract, attention turned to the systemization and automation of these actuarial processes. Among the results achieved are a reduction in the Solvency II working day timetable from 32 working days to 10 and a 50% reduction in the resource required to perform a quarterly valuation. Actuaries now spend almost all their time on value-add activities rather than production with automated governance and audit trails reducing the need for manual interventions.

Suggested steps along the way

Out of this and other work in this area, we’ve come up with a series of tips to help frame and guide transformation projects. Over the coming weeks, we will introduce them phase-by-phase in a series of blog posts, starting predictably at the beginning, when companies are deciding their priorities and approach.

Further reading: IASB issues IFRS17 Insurance Contracts, starting the countdown to 2021


 

Richard Waller and Joyce Simmons are directors in the insurance consulting practice at Willis Towers Watson.

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