26 September 2012

Risk.net: UK insurers behind schedule on Solvency II data requirements

The Financial Services Authority highlights problems with data control, ownership and validation. UK insurance firms are continuing to struggle with the data requirements imposed by Solvency II.

Firms undergoing the internal model approval process (Imap) need to integrate new data governance structures into day-to-day business processes in order to meet the requirements of the new regime. However, the scale of the challenge means many companies are falling behind schedule in building the required infrastructure, experts warn.

Acquiring asset data of appropriate granularity has been a particular problem for insurers, says Matt Gosden, London-based partner at consultancy Oliver Wyman Financial Services.

Insurers, Gosden says, are having difficulties documenting and validating asset data. Firms are required to gather data on an asset's class, credit rating, issuer, counterparty and concentration risk - a task that some are finding difficult to manage in the Solvency II timeframe. This is particularly complicated if an insurer relies on a third party for its asset management.

Another burden is the requirement for insurers to conduct a ‘look-through' analysis of assets held in funds managed by a third party. The UK's Financial Services Authority (FSA) found that many insurers undergoing the Imap are struggling to comply with the data requirement.

The FSA identified 10 areas where insurers' current processes are inadequate. These included deficiencies with data control, confusion over data ownership, and difficulties in building bespoke data directories. There were even instances where the risk owner had never seen the data policy or was not aware of the data deficiency management process.

However, some say the overall picture is more mixed than the FSA suggests. David Prowse, a senior director of insurance at Fitch Ratings in London, says there has been a varied response to the data challenge across the industry. Yet the need to ensure that the right processes are in place in time for the implementation of Solvency II means all UK firms will have to accelerate their current programmes, say consultants.

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