Managing growth in a stringent regulatory environment
Our Insights

Managing growth in a stringent regulatory environment

Solvency II and what it means for EU insurers
  • 27.8% of insurers expect Solvency II to have a negative effect on profitability
  • UK insurers alone have invested £3 billion to be compliant with Solvency II
  • Around 87% of EU insurers use insights from analytical tools and technologies significantly (medium to very high focus) to make investment decisions
  • Usage of insights from analytics is at 95% for product development
  • 87% of insurers are focusing on streamlining systems and processes on the IT and operations side

Solvency II was implemented from January 1, 2016 and EU insurers now face new regulations. They are now required to hold capital against underwriting, credit, liquidity, market and operational risks. They have to take a proactive, future-looking approach to risks, and are subject to closer supervision and disclosure requirements. While the impact of these provisions is felt across the insurance value chain, the brunt is being borne by the asset management, risk management and actuarial functions more. Managing risks optimally is the key driver for generating higher shareholder value in insurance. During 2011 to 2015, insurers in the ‘optimal risk return’ category witnessed an improvement of 92.9% in their share price compared to only 30% change in the case of insurers in the ‘partially optimal/sub-optimal’ categories.

To reduce the adverse impact of Solvency II, insurers must optimize their risk by:

  • Creating robust risk assessment frameworks

  • Handling risks optimally

  • Optimizing operations to reduce costs

The adoption of digital technologies and advanced analytics is essential to all three of these strategies. For instance, analytics can be woven into risk assessment frameworks and be used to price premiums based on the risks. It can be leveraged to understand which market investments are risky and should be scaled back. Big data analytics, on the other hand, can prevent potential fraud and lower underwriting risks. Digital channels can thus help streamline operations and reduce inefficiencies arising from unnecessary complexity.

To learn more about Solvency II, its impact and strategies to deal with it, read the full report.