UK insurers expect to spend up to £300m-£400m through 2012, discovers Accenture

More than three-quarters of large European insurers expect to spend less than €25m through 2012 on Solvency II compliance, with more than half of those expecting to spend less than €5m, according to results of a survey released by Accenture.

Specifically, one-third of the insurers surveyed said they expect to spend between €5m and €25m on such compliance, with an even greater amount – 43% – saying they expect to spend less than €5m.

The European Union’s Solvency II directive calls for a common set of solvency regulations for insurers across Europe by 2012, including the enactment of new rules regarding the levels of capital that EU insurers must set aside to cover their combined risks and liabilities.

Considering Solvency II in the larger context of strengthening their enterprise, three-quarters (75 percent) of respondents said they believe that their compliance investment will support their business needs.

More specifically, 94% said they believe it will increase stakeholders’ confidence in risk control and management, 88% said they expect it to increase stakeholders’ confidence in the insurers’ capital reserves, and 85% said they expect it to provide enhanced capital management.

Mark Wheaton, a senior executive with Accenture, said: “Based on the survey findings, the cost of complying with Solvency II is currently expected be in the region of £300-400m for the UK Insurance market, although our experience is that these costs will rise as we get closer to 2012.

“UK insurers have complied with the FSA’s Individual Capital Adequacy Standards (ICAS) requirements so, as a result of this, they have already implemented risk sensitive capital models.

“ICAS places the UK industry in a good position, however, the requirements of Solvency II go much further than just having a capital model. The insurers now need to focus on strengthening their strategic risk management approach and embedding the capital models into the day-to-day operations of the business. In addition there will be additional requirements for market disclosure and the current capital models may be impacted by future accounting standards relating to the valuation of insurance liabilities.”

“Insurers expect to spend far less to comply with Solvency II than banks expected to spend to comply with Basel II requirements,” said Eva Dewor, a senior executive in Accenture’s Insurance practice.

"While achieving Solvency II compliance with the lowest cost possible might be an acceptable strategy for some insurers, they should be aware that a compliance-only approach, without the necessary investment in risk management for certain core business processes, won't enable them to reap the benefits they expect or to anticipate crisis situations."