Solvency II: French insurers turn focus to governance

The study by Optimind, a Paris-based consultancy, indicates that a majority of players in the industry are now particularly concerned with meeting governance requirements.

Of the experts surveyed by the consultancy, 70% said that it is in Pillar II that the main challenges today remain.

Pillar II deals with issues like risk management and policy procedures, which require organisational and cultural changes, rather than efforts on the technical side.

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For instance, Optimind concluded that the choice of IT tools available for compliance with Pillar II requirements is considerably less advanced in France than for Pillar I, which is more focused on financial aspects of insurance companies.

“In the course of the past few years, which were characterised by intensive efforts around Pillar I, it looks as if Pillar II has been neglected for a long time,” noted the consultancy. “Insurers are aware that they still have important cultural progresses to make, especially in terms of risk management and governance.”

The survey interviewed more than 101 insurance experts from 64 entities in industry. Four out of ten participants represent insurance companies, while another 30% work at mutual insurers. The remainder include executives from banks, brokers, regulators, consultancies and other players in the insurance industry.

A little over one third of respondents believe that insurers will likely get out of some lines in order to adapt their business models to Solvency II. The activities more likely to be ditched, according to the survey, are those related to life insurance, savings and pensions. However, Optimind says that fewer insurers than before expect that they will have to change tack.

Industry associations, in their efforts to tone down capital requirements under Solvency II, have argued that insurers will have to withdrawn from investments in equities as a result of the new rules.

The argument seems to have struck a cord with many in the French insurance sector. 90% of those surveyed expressed a similar view, up from 69% in 2010. According to Optimind, significantly lower profitability is also expected.

The survey shows that, as the deadline to comply with the new rules looms, the insurance industry in France is dedicating more resources to Solvency II. One in every six respondents said that budgets dedicated to the directive have increased in the past two years, while 23% said it remained stable.

The findings also indicate that a relatively low number of insurance companies will have their own internal models in place right from the start. Of all respondents, 48% said that their companies will use the standard model elaborated by EIOPA, although 19% stressed they could switch to a customised model in the future.

Another 18% plan to implement a mixed model, partially design by the company and partially based on the standard formula, while 22% are working towards having their own models in full throttle from the start.

Four out of every ten respondents said that the standard formula still requires further calibration, while a quarter of them urged the authorities to simplify the formula. Only 12% believe that Solvency II is close to its final shape.