Viewpoint: The IT challenge of Solvency II

The regulation of brokers in January 2005 saw many firms consolidate because they left it too late, so it will be interesting to see the response on the other side of the coin with regards to Solvency II, especially for smaller, specialist players.

With only two years before the directive comes into force, action is needed. Insurers need to look at capital efficiency, organisational processes (including the impact on their brokers) and balancing their portfolios and channels if they are to meet the requirements. They must also consider IT - a critical aspect of Solvency II implementation.

Talking to insurers large and small about how they are preparing for Solvency II, IT seems to be high on the agenda, yet many remain unprepared considering the amount of work and liaison that needs to occur with stakeholders such as brokers and adjusters.

My advice is to look closely at your platforms - do they have the right data flexibility to enable you to deliver what the FSA requires? Solvency II is not optional: it is an important European Union directive that will bring about good governance and consistency. Even so, it is estimated that IT will be responsible for over half the cost of adopting Solvency II.

Despite the myth, Solvency II is not an actuarial regime. Aspects that should be considered include data modelling and data-flows, data warehouse structures, documentation and relevant reporting controls, direct data input - as well as that received from third parties such as brokers - and data security. Read the Ceiops advice on Solvency II to assess the IT implications.

With Solvency II and its strengthened requirements on capital adequacy and risk management, there are no options if insurers and broker partners want to continue trading. In a similar way to the Y2K projects ten years ago, the journey for each provider will throw up issues but, like any key software project, adequate preparation and planning should ensure success. This will mean full involvement with all parties and adopting a strong risk culture.