It’s interesting to see how the insurance industry is currently responding to the deluge of regulatory reform that will take place over the next 18 months. In 2012 reforms will affect regulations and pensions, as well as the Retail Distribution Review (RDR). All these initiatives are arriving around the same time, and the challenge for organisations will be to establish programmes that will deliver these reforms in a way that compliments their business. But embracing change is about more than just compliance; it’s about thriving in a highly competitive market.
Solvency II in particular will have a major impact on the insurance industry, but it will also result in some real benefits for companies. The industry is already beginning to ask questions about its own construction, its players, and the operating models required to comply with Solvency II. Companies will embrace the discussions that will no doubt develop over the coming months, and many progressive conclusions will come of that.
In many respects, Solvency II will fundamentally reshape the insurance industry, especially regarding how companies embed capital into their risk management processes. This is going to be a major change and I can see the UK playing a pivotal role in driving the Solvency II agenda at a global level.
The industry is largely on track to meet the Solvency II deadline, although there are aspects of companies’ infrastructure that will take some time to evolve, particularly systems and technology. This is because the essence of Solvency II is greater transparency of the core numbers. These systems have been in place for many years and to change them overnight or, indeed, over 18 months is a considerable challenge.
Retail Distribution Review
The RDR is another critical element of the regulatory reform, one that will impact consumers as much as insurers. This reform will aim to provide the consumer with transparency regarding particular products and help them understand when they are engaged in either a sales process or an advice process. The government needs to provide education so when consumers are engaged in these discussions they have a very clear idea about what’s really going on.
The post-implementation period of the RDR is going to be critical to the insurance industry. Will the industry have the right technology platform? The right products to sell through its channels? Will propositions be clear in the marketplace? The answers to these questions will fundamentally affect firms’ business models.
Seeking an advantage
Are clear winners emerging in the race to prepare for industry reform? I think it’s a little too early to say, but firms are taking the forthcoming initiatives very seriously indeed. They are thinking about their business models and how they can address them to the marketplace. Firms are attempting to manoeuvre themselves into a position not only to comply with these significant reforms but also to meet those reforms with a clear advantage.
The UK insurance industry is one of the largest in the world, dealing with some of the most complex risks across the global insurance industry. We have a capability in the UK that leads the way in many respects, in terms of not only executive leadership but also the technology the industry provides to the global sector. These are just some of the achievements about which the UK insurance industry can feel immensely proud.