Skip to main content

Cost of Solvency 2 rules for SA life insurers ‘a shock’

THE cost of Solvency 2, the new regulatory framework for life insurers in Europe and the UK — which will be implemented in SA by 2014 — has come as a shock to company boards.

This was according to Deloitte vice-chairman and partner Louis Jordan, who was on a visit this week to brief the accounting firm’s South African life insurance clients about the effect of Solvency 2 so far in Europe, prior to its implementation by end-2012.

London-based Old Mutual indicated earlier this year it would be allocating about £100m towards the implementation of Solvency 2, which Jordan said was similar to that of other insurers.

Historically, SA’s life insurers have been early adopters of regulatory change emanating from the UK and Europe. They will represent a “second wave” of firms to adopt Solvency 2. SA’s Financial Services Board has already set up working groups to establish the regulations for implementation in 2014.

The overhaul is well under way in Europe. Existing solvency rules for life, non-life and reinsurers will be significantly upgraded, and the overhaul will also be seen in insurers applying capital in different ways.

Like the Basel 2 proposals on banking regulations, Solvency 2 has come about because of a need for greater transparency in the life insurance industry, and also for improved consumer protection and improved risk management in the wake of the financial crisis.

Jordan said experience in Europe had shown that boards and nonexecutive directors had been shocked by the total cost of the implementation of Solvency 2. Most insurers in SA had Solvency 2 programmes in place , but these were at a very early stage.

He said the price of actuaries working on contract had “gone through the roof” in Europe, because more were essential for Solvency 2 implementation . There may be a shortage of actuaries in SA once insurers start working on the programme in earnest.

Jordan said the project was made particularly difficult by the complexity of life insurance businesses, where clients need to have access to information and services from insurers and on their products for up to 25 years or more.

Actuaries typically spend many years at one insurer simply because that is how long it takes them to master the systems and books of the company.

So overhauling the systems, products and data of insurers, and increased reporting requirements such as having to provide documentary evidence to regulators for all business decisions, was not a matter of “just parachuting in a few actuaries”, said Jordan.

In addition, many insurers have products, and hardware and software supporting those products from many years before, and typically, only a few people in a company still knew how to operate or change these. Hardware and software companies have also disappeared over time, so back-up support is often not available.

Experience in Europe showed that life insurance companies were not used to implementing projects on the scale of Solvency 2, as opposed to banks that periodically implemented large capital expenditure programmes.


Popular posts from this blog

10 Common Car Insurance Terminologies You Must Know About

  Due to a lack of information on particular words specified in the car insurance policy document, most car owners buy a car insurance policy based on its coverage and premium but do not grasp its terms and conditions. As a result, using the policy becomes more difficult. As a result, before acquiring a vehicle insurance plan, it is advisable to familiarise yourself with the most prevalent car insurance dictionary words. To help you make an informed decision, let's look at some of the most common phrases related to vehicle insurance. Terms Commonly Used Among the often used terms are: ·          Covers with Add-ons Additional insurance coverage, known as add-ons or riders, can be purchased in addition to a Comprehensive Plan. These plans are not available as a standalone cover or in combination with a Third-Party Plan. Coverage or service-related add-on covers are also possible. A Zero Depreciation Add-on, for example, is more of a coverage-enhancing add-on, whereas a Roads

Business Insurance Basics

Business Insurance Basics Most businesses need to purchase at least the following four types of insurance:  1. Property Insurance Property insurance compensates a business if the property used in the business is lost or damaged as the result of various types of common perils, such as fire or theft. Property insurance covers not just a building or structure but also the contents, including office furnishings, inventory, raw materials, machinery, computers and other items vital to a business’s operations. Depending on the type of policy, property insurance may include coverage for equipment breakdown, removal of debris after a fire or other destructive event, some types of water damage and other losses.  Business Interruption Insurance  Also known as business income insurance, business interruption insurance is a type of property insurance. A business whose property has sustained a direct physical loss such as fire damage or a damaged roof due to a tree falling on it in a windstorm and h