US life insurers should view new regulatory reporting changes as a way to strengthen their companies or face cost and talent management challenges, according to Towers Watson.
The firm conducted a survey that explored life insurers' preparation to comply with current and emerging regulatory requirements and the impact these new regulations would have on business operations.
Towers Watson polled 20 life insurance chief financial officers and the survey addressed requirements for the International Financial Reporting Standards (IFRS) 4 Phase 2; National Association of Insurance Commissioners (NAIC) Own Risk and Solvency Assessment (ORSA); NAIC Valuation Manual (VM) 20; Actuarial Guideline (AG) 38, revisions for 8D and 8E; and Statement of Statutory Accounting Principles (SSAP) 102/92.
Jack Gibson, managing director of life insurance consulting at the firm said: 'The looming challenges are evident. Preparing for [the regulatory requirements] provides insurers with a great opportunity to assess reserving and capital, reporting functions and enterprise risk management. They can also use it to re-evaluate whether new talent is needed, or existing talent can be further challenged with new responsibilities.
'The complexity of these new life insurance regulatory requirements makes it imperative that insurers understand exactly how these changes will alter everything in their business - from supplementary reporting to capital financing for products such as universal life with secondary guarantees and term insurance.'
However, the survey found that only a small number (13%) of CFOs report that key personnel were experts in each of the regulatory reporting requirements examined in the survey, while slightly over one quarter (27%) understood the basics for each initiative.
Gibson added: 'Even if CFOs have people who know the intricate details of these regulations and are able to focus on near-and long-term planning for financial functions, that planning will be easier if CFOs are well-informed on the life insurance regulatory changes.
'But according to our results, the majority understand just the basics, or have a low level knowledge-base on most of the reporting requirements.'
The survey also highlighted that 80% said they would draw on a combination of maintaining technological knowledge in-house, with at least some outsourcing to comply with the IFRS 4 Phase 2 framework. However, CFOs expect to make only moderate, if any, changes to current staffing levels to address the new reporting requirements.
The firm added that all new regulations were likely to cause changes to insurers' current software models production processes. Over half (56%) of the CFOs surveyed expect major changes to product design and pricing for universal life (UL) with secondary guarantees.
Gibson said insurers that are able to create systems flexible enough to incorporate these new changes and adapt to future changes would be best positioned to manage software-related costs.
Meanwhile, most CFOs expect to make at least moderate changes to their governance, process and controls in response to all five regulations, but more than 60% anticipate implementation challenges.
The firm said it was 'remarkable' that many insurers didn't have significant controls and governance in place to meet these new requirements.
