Mike Learned, vice president of product management, SunGard Insurance
Recent turmoil in financial markets has prompted global insurance regulators to consider sweeping reform designed to protect policyholders and promote confidence in the financial stability of the insurance sector. Today, most insurers manage risk data within each discipline without a cohesive view of the exposure throughout the business.
Solvency II, in Europe, introduces new guidelines for risk management and requires insurers to implement procedures to identify, measure, and manage risk levels. Worldwide, insurance regulators, including those in the U.S., are looking to the principles of Solvency II to provide a blueprint for similar regulatory changes.
Regulators in the U.S. are considering regulatory reform based on certain Solvency II principles including the introduction of a requirement similar to the Own Risk and Solvency Assessment (ORSA). U.S. insurance regulators have nothing comparable to the ORSA report of Solvency II, which requires insurers to provide the supervisor with a document that includes its internal assessment of its risks, risk management systems, and risk profile.
However, Solvency II has set a framework for rating agencies, investors, regulatory bodies, and policyholders as they begin to look within an insurance company for a system of governance and control that provides proof for the adequacy and validity of risk-based decisions.
In order to meet these expectations, insurers will need to undergo a risk assessment, measurement and management process, similar to what is required in the Solvency II requirements. They will need to conduct a thorough analysis of data and processes and implement a comprehensive enterprise risk management approach that provides transparency of risk throughout the organization.
Insures stand to reap great benefits from such a risk management and measurement process, even if it is not driven by a specific regulatory mandate. By making changes that integrate analysis, oversight and management of risk operations and institute an enterprise level of governance and control for processes and data management, insurers will not only improve the visibility of risk, allowing greater insight into potentially risky behaviors, but also provide policyholders with much-needed confidence in the insurance market.