Recently, both EY and PWC released surveys on the state of readiness of insurers. EY compared the end of 2012 to the end of 2013; the survey revealed that insurers were more prepared in 2012 than they were in 2013. But is that what this report was really telling us? I compare it myself to a parent asking a child on a Friday evening if they have completed their homework. The child will answer ‘Yes’ with a view to freeing up the weekend for the enjoyable things they seek to do. The parent on Sunday evening asks again to confirm if homework is complete, and then to their surprise they get the answer ‘Well, sort of, kind of … no!’. And this is what the EY survey tells us. Until something is looming, the reality does not hit home.
The PWC survey showed that less than 2% of insurers ‘said’ they were ready for pillar 3 reporting. What I would read from that, if 2% said they were ready, the reality is probably less than 1% is actually ready.
At two recent conferences (Insurance ERM’s ‘data for ERM’ and the Association of British Insurers) something struck me. At Insurance ERM, a question about controls was asked by a delegate to Dean Buckner of the PRA. Dean had been presenting on how the PRA would like to see an overview of controls insurers have in place, and if so from a pillar 1 view. The question was asked about controls on the pillar 3 side. Dean’s response was that if you have the controls in pillar 1, you therefore already have the controls and data in place for pillar 3.
However, this shows the assumptions the PRA has of insurers, and the misleading belief that insurers are applying the same data in pillar 1, as to what they will report in pillar 3. The truth is they don’t have the data for pillar 1, which causes pillar 3 to become the most problematic pillar for 2014 and 2015.
At the ABI event, there was a discussion about the timing of data delivery from asset managers to insurer for look-through on investment funds. Susan Wright of the IMA suggested that day 15 after month end might become a suitable compromise. However, Robert Chorley of Aviva was quick to point out that this would not work and that day 5 was more realistic for insurers reporting cycle.
The part I found interesting was in both cases ‘reporting’ is what is referred to. This is where the issues lie and this is what is problematic for insurers. We did not come across these issues when data models were being developed, and the market were focusing on pillars 1 and 2, which asks the question what level of data is being used in these?. The reality is, that sometimes data is only important when you have to show it to somebody else (your local NCA).
So, it looks like its Sunday night. I’ll ask the question “Who’s got their homework done?” We know the answer, don’t we?
Filed under: insurance regulation, look-through, regulation, Solvency II Tagged: Insurers, Pillar 1, Pillar 3, Reporting Image may be NSFW.
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