WTW Survey: Most Insurers Uncertain on Key Solvency II Requirements

A Willis Towers Watson (WTW) survey has revealed the extent to which significant uncertainty remains in the insurance industry concerning the approach to key Solvency II requirements since the regulation came into force on January 1, 2016.

WTW conducted the comprehensive survey of 39 property and casualty (P&C) insurers in the United Kingdom, with a combined underwriting value of over £10 billion of premiums and over £24 billion of reserves in 2017, in order to gauge progress made by the market in dealing with the Solvency II actuarial function requirements since the regulation came into effect 2 years ago.

According to WTW, "Expressing an opinion on the overall underwriting policy is one of the Level 1 requirements of the actuarial function contained in the Solvency II Directive." Of the insurers who took part in the survey of actuarial functions, 80 percent agreed that there remains considerable uncertainty regarding regulatory requirements affecting the underwriting opinion in particular. However, 82 percent have yet to seek any external advice to help address this lack of clarity. The findings also showed that a significant number of respondents (13 percent) do not consider the underwriting policy or process when producing the underwriting opinion, which WTW believes should be a fundamental step when producing an opinion.

"The lack of clarity around such a central Solvency II requirement is a major concern as underwriting policies directly impact an insurer's performance, underlining the need for better guidance," said Tammy Richardson, managing director, UK P&C leader, at WTW. "The findings also reveal underwriting as an area where the actuarial function could be adding more value by helping to produce and assess the overall underwriting policy framework and providing independent challenge."

In calculating their technical provisions, survey respondents also found that meeting the reporting timetable has been the biggest challenge by far, with over 60 percent of respondents identifying this as an issue.

"With [International Financial Reporting Standard] IFRS 17 fast approaching, timetables will continue to be squeezed and the pressure on insurers will intensify," said Sanjiv Chandaria, actuarial function product leader at WTW. "In order to meet these challenges, insurers will need to develop more efficient processes primarily through the use of the latest Insurtech software and technology which will also free up scarce resources to focus on adding the most value."

When asked where the actuarial function should focus on adding value in the future, 64 percent of respondents pointed to the need for improved efficiency of processes and calculations in order to meet regulatory requirements, most likely driven by current reporting timetable challenges.

"Many calculations are still predominantly spreadsheet based which is unlikely to help meet reporting timescales," said Mr. Chandaria. "One way that current processes can be made more efficient is through the use of workflow management tools to integrate various tools, support better governance and enable automation. We're seeing a real push in the market towards the use of such tools, as well as robotic process automation.

"In order to make the best use of the latest technologies and software, however, a clear understanding of the regulatory requirements is an essential first step before implementing a more strategic approach to address today's challenges of speed, frequency and cost."