Life InsuranceJul 10 2014

Solvency II is a ‘necessary evil’ for insurers: survey

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Three quarters of respondents to a Grant Thornton survey feel the cost of Solvency II is disproportionate and two thirds believe the value added will not justify the expense incurred.

Some 77 per cent of respondents believe that Solvency II, which changes capital adequacy requirements for the European insurance industry, is using up valuable resources that could be far better used in other areas.

About 62 per cent of the 77 senior executives at insurers who were polled in May and June felt that preparations for Solvency II were distracting them from the day-to-day running of their business.

Last conducted in 2012, Grant Thornton’s survey also identified an increase in the proportion of participants who believe that Solvency II is the most appropriate way to run their business – from one in four participants in 2012 to one in three currently.

It also identified a 17 percentage point increase in the number of respondents believing Solvency II to be a ‘necessary evil’ – from 27 per cent in 2012 to 44 per cent in 2014.

Simon Sheaf, head of actuarial and risk at Grant Thornton UK LLP, said: “Increasingly, the sector is begrudgingly accepting Solvency II as a ‘necessary evil’, and recognising that it will bring some benefits.

“However, it is clear that they do not believe that those benefits will be significant enough to justify the costs. The volume of work and resources that have gone into preparations for Solvency II compliance have been astounding and insurers have substantial reservations regarding the impact this has had on their businesses.”

The majority of participants surveyed were optimistic about the new implementation date, with 76 per cent agreeing that it would ‘go live’ on 1 January 2016, and 98 per cent of respondents suggesting their organisation would be prepared to do so if necessary.