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The Actuary The magazine of the Institute & Faculty of Actuaries
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Insurers’ manual systems straining under burden of regulation

The burden of financial reporting under Solvency II, International Financial Reporting Standards (IFRS)and other regulation is stretching insurer resources to the limit as they implement new processes and develop new tools in preparation, says Towers Watson.

A recent study by the consultancy firm warns that insurers will continue to struggle with compliance and reporting unless they move away from the commonly used manual-based processes to more industrialised technologies. Nearly three-quarters of participating firms required manual adjustment to results, the firm said.

"The risk-reporting processes at the core of the day-to-day management of insurance businesses must move away from a desktop spaghetti of reporting systems towards streamlined and controlled applications that function in a secure and stable environment" added Joel Fox, director at Towers Watson.

The Towers Watson Industrialisation Benchmarking Study, based on data from insurance companies throughout Europe with total assets of around £550bn, found that firms have recently bolted on risk-reporting systems as extensions to pre-existing processes. Less than 10% of participants’ current modelling systems were integrated into the rest of the IT landscape, such as via connection to data warehouses.

The firm says there are four primary motivations to industrialise actuarial and risk reporting. These are the need to continually monitor and manage risk, capital and value; evolving regulation; the wish to reduce costs; and the requirement to reduce overall operational risk.

Towers Watson asserts that expertise in the latest modelling techniques and system technologies, as well as change management, is a prerequisite for developing a strong operational and actuarial control cycle.

Joel Fox said: "The time and resources currently allocated to the calculation process is excessive and unsustainable. In contrast, investment in the industrialisation of models will pay off via a significant increase in efficiency and quality, proving integral to successful management and keeping pace with change in a complex world."

The results come after publication of the latest Insurance Banana Skins study (The Actuary 31 May) which ranked regulation as the top challenge currently facing insurers.