From Pain to Gain: Making Solvency II Reporting Easy and Valuable

By: Ronny Reppe, 17. July 2021

Solvency II has ignited a renewed focus on data quality and data management within the insurance industry. Unfortunately, many insurers view Solvency II data quality requirements primarily as a regulatory issue, ultimately missing out on how improved data management capabilities can enhance decision making, kick-start business process digitisation and increase stakeholder value.

“I have personally spent at least 20 percent of my time on Solvency II issues over the past five years, and over the same period, our organisation has paid various consultants several hundreds of thousands of dollars. We will definitely spend more money on achieving full compliance with the rules.”

These are the words of the manager of a €9.2 million municipal captive, who was interviewed as part of an independent survey of EU captive managers commissioned by us in Noria in 2016. It stands as a striking example of the resources, money and time spent on preparing for and implementing Solvency II reporting.

The same survey reveals that 78% believe Solvency II is too complicated and a third of the respondents do not believe that Solvency II reporting will be of value to their operations. Solvency II certainly raise the bar for data management within the insurance industry, and the cost of implementing Solvency II reporting processes have in many cases reached weighty sums. But Solvency II is not in and by itself a problem. The pains associated with Solvency II reporting is a symptom of a deeper underlying problem: a lack of proper data quality and data management.

Improving data quality and data management will both ease Solvency II reporting while at the same time provide value for insurers.

RAISING THE BAR FOR DATA MANAGEMENT

Since 2016, Solvency II has been the legislative, regulatory regime that was imposed on all EU insurers and reinsurers. As a new and harmonised EU legislative program for insurers, it aims to unify a single EU insurance market and improve consumer protection – not unlike what the upcoming General Data Protection Regulation (GDPR) aims to do within the world of data protection laws.

Similar to the banking regulation Basel II, the Solvency II framework has three main areas, or pillars, which covers both quantitative and qualitative aspects:

  • Pillar I: This pillar comprises the quantitative requirements, setting out formulae and methodologies for arriving at actual risk-based capital levels.

  • Pillar II: This pillar covers governance and risk management. For some regulated entities, demands under these pillars have been significant.

  • **Pillar III: **This pillar focuses on public and regulatory reporting. Its purposes are to improve transparency, which regulators expect will foster market discipline, and to generate the source material which underpins regulators’ risk-based supervision. Pillar III, in particular, has increased the reporting requirements regarding both volume, frequency and complexity.

For many insurers, the data required to complete reporting is much more detailed and complex than may currently be compiled for reporting or internal use. According to PwC, there are three criteria for the assessment of data quality:

  • Accurate: Data should be accurate. Accuracy relates to the degree of confidence that can be placed in the data. Data should be free from any errors or omissions, have a high level of confidence and be recorded in a timely and consistent manner.

  • Complete: Databases should provide comprehensive information for the undertaking.

  • Appropriate: Data should not contain biases which makes it unfit for its purpose.

For instance, many insurers have their data scattered across various document, spreadsheets and emails making the task of searching for and aggregating the necessary data painstakingly difficult. Others suffer from poor data quality hindering efficient regulatory reporting. Others have complex fund investments which require diligent data collection.

RELIEVING SOLVENCY II REPORTING PAINS

Although Solvency II has increased the complexity of reporting, Solvency II reporting can be made relatively easy by improving data management processes, increasing data quality and leveraging an appropriate insurance system:

  • Improved data management: Many insurers have their data scattered various documents, spreadsheets and emails, while others suffer from poor data quality hindering efficient regulatory reporting. Solvency II directly pin-points these pains, as the task of searching for and aggregating the necessary data in various documents and systems becomes painstakingly difficult. To improve data quality and efficiency, data should not need to be entered into several systems. Use one data source to maintain policies, claims and reinsurance. This will both simplify government reporting as well as management reporting and customer history analytics.

  • A well-suited insurance system: To meet Solvency II reporting requirements, insurers increasingly need a tool which draws reporting data from the information routinely processed in the ordinary course of business. As the market for packaged software solutions capable of supporting multiple business functions as well as regulatory reporting has matured, several service providers offer insurance systems with built-in Solvency II reporting capabilities. A sound system supplier should be able to provide you with the possibility of retracting all your relevant data in the same format. This data should then easily be imported into a Solvency II reporting tool. At the very least, your IT-supplier should be able to provide you with a simplified setup for Solvency II.

Several IT and software suppliers have developed the necessary tools to perform government reporting straightforwardly. With the available technology in hand, insurance companies should not need to do more than ensure they have quality data, structured data and the necessary data management competence.

SOLVENCY II REPORTING TOOLS

Although the technology for straightforward Solvency II reporting is widely available, few seem to harvest the fruits of its potential. One of the findings in the survey referenced above found that only 22 percent of the respondents have a Solvency II reporting system which is integrated with other administrative systems.

To help you ease the Solvency II reporting process, we, therefore, provide you with a few well-suited and comprehensive tools you should consider checking out:

  • Escali Supervision: The Norwegian software company Escali launched the software Supervision with the aim of simplifying Solvency II reporting through an easy-to-use interface. Although adapted to the Norwegian market, Escali Supervision is, in general, a solution where both national and international reporting is intertwined with, in conformity with and based on the same data.

  • SolvencyTool: A user-friendly software that efficiently collects relevant data from various internal sources sends data automatically through data integration. It also allows you to perform SCR calculations, obtain QRTs for SCR and MCR automatically, update information and check for inconsistencies before reporting to the authorities.

CONCLUSION

Solvency II reporting is neither as terrifying and challenging or as unprofitable as many thought it would be back in 2016. Ensuring well-structured, coherent and comprehensive data storage in a well-suited insurance system, combined with the proper reporting tools, will undoubtedly ease any Solvency II reporting effort. If a quality IT solution is in place with superior data quality, Solvency II reporting is relatively straightforward. Our recommendation is to use data quality and management improvements not only to get Solvency II reporting in place but to go ahead and fully digitise your business and provide more value to your stakeholders.