Insurers unprepared for Solvency II: Deloitte

UK insurers appear complacent about the introduction of Solvency II, according to Deloitte, the business advisory firm.

Deloitte surveyed insurers covering both London and company markets on the expected impact of the new regulations and found that more than two-thirds (70%) do not yet have a Solvency II programme in place.

A similar number (69%) of insurers feel that Solvency II is just another regulatory burden and nearly half (43%) the respondents said the cost and disruption of complying with Solvency II will outweigh any benefit that may be derived. Another 21% believe the overall impact will be neutral and that any benefit will be offset by the investment required to put the regime into practice.

Half (50%) of the insurers surveyed expressed doubts over the consistency with which Solvency II will be applied by supervisors in different European countries.

Commenting on the findings, Rick Lester, insurance partner at Deloitte said: “The majority of insurers currently view the implementation of Solvency II as purely a regulatory burden, rather than as a tool that can help their business to achieve its strategic goals.

“Many insurers have been busy complying with other regulations such as the introduction of Individual Capital Assessments and MiFID and may not yet have turned their attention to Solvency II.

Rick Lester, insurance partner at Deloitte

“Though it is understandable that insurers are not enthusiastic about adopting another set of regulations, viewing Solvency II simply as a compliance burden not only presents potential problems but also missed opportunities.”

The perception of Solvency II as a compliance burden has led to some insurers dragging their heels. Less than a third (30%) have conducted gap analysis, a critical indicator of how far their company will have to go in order to comply.

Although there is a general awareness of Solvency II, there appears to be a lack of detailed knowledge of the process. Nearly half (43%) the respondents to Deloitte’s survey said they possess awareness and understanding of the principles of Solvency II but no detailed knowledge of its stipulations.

Lester said: “Many insurers have been busy complying with other regulations such as the introduction of Individual Capital Assessments and MiFID and may not yet have turned their attention to Solvency II. However, with five years to go to the deadline, the task of adoption and implementation is in danger of being underestimated, with too few resources being deployed to the task. The good news is that the extension of the EU’s deadline for adoption from 2010 to 2012 does give insurers more time but its important that companies start looking at the impact on their business as the structure of the new regime is starting to take place.”