Vivek Syal, Director, Insurance, PwC
One thing is certain - 2015 is already shaping up to be a year of significant local and global change with the UK insurance market very much central to it. My view last year, which I shared in this column, was that Solvency II will be seen as a significant step forward in how insurance companies organise and operate themselves.
This is equally the case for the Prudential Regulatory Authority (‘PRA’) and their European counterparts who will also be required to reassess and update their methods of assessment to provide the most effective and transparent supervision possible. There are three specific areas that I want to draw attention to this month:
Embedding: What is the role of Internal Audit in 2015 and beyond in a pre/post Solvency II world? How will remuneration and reward schemes be impacted? What potential future enhancements to risk and capital assessment are you likely to make? These are some of the questions that should be addressed as efforts turn towards embedding recently implemented procedures.
Model change and governance are good examples of how regulatory principles have translated into specific policies and procedures and then implemented into sustainable core business processes. With Pillar 3 and finance transformation programmes now in full swing, taking a longer-term strategic view towards embedding activities will ensure cohesion and avoid unnecessary duplication further down the line. It should also be noted that embedding should be driven not only for regulatory purposes but also for business reasons and therefore efforts and focus should be commensurate with expected benefits.
Stress and Scenario (SST) Analysis: A critical and important area of focus, typically SST is a psychologically complex topic but is not just about determining downside effects. All insurers should have in place a robust framework that is not only appropriately governed but also points in the right direction.
In doing so, insurers will be well positioned to determine new opportunities and consequently navigate through any predicted or unpredicted turbulence in a clear and precise way. Board engagement in this regard is important, not only in determining scenarios and subsequent management actions, but also in respect of strategy monitoring and development. SST, given its multi-dimensions and layers, remains a top priority for actuaries, risk managers, and business continuity teams to test the robustness and resilience of their organisation.
Cyber Security: You will have no doubt seen numerous recent items in the press related to cyber security and data integrity. Though not explicitly related to Solvency II this increasingly important area is fundamental to an effective enterprise risk management practice where all key risks are considered and managed. Cyber catastrophe events may become a significant manmade catastrophe risk of the future as insurers automate, digitise, implement cloud based services across the business.
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