For many of us working in the European Insurance sector, Solvency II is a phrase we have become all too familiar with. No doubt Solvency II has been and continues to be a major challenge. But, perhaps it also forces us to view our business processes from a different perspective. Could Solvency II be used as the catalyst to improve them?
What does Solvency II have to do with data quality? Let me explain…
We recently attended the European Insurance Forum (EIF) in Dublin, where Solvency II (SII) was top of the agenda for many delegates and speakers. Now that SII has gone live in January, the focus seems to have shifted from implementing the SII framework to meeting the first reporting deadline in May 2016. Interestingly, while conversations at the EIF seemed to focus on the reporting challenges for SII, very few discussed or even mentioned the quality of the data underpinning this reporting. This leads me to ask the question,
“Is data quality so good that it is not an issue, or is it so poor that no one wants to think about it?”
Quality Data is the Backbone of Solvency II.
We all know that data is the lifeblood of an insurance company. Solvency II can be described as both the heart-rate monitor and stress ECG for an insurer. Regulators and other ‘care personnel’ regularly check these key performance indicators to ensure the patient is in good shape. When poor data quality clogs the company’s arteries and causes high-blood pressure for those involved in SII reporting (SCR and ORSA), this is not just a tedious inconvenience. It is an indication that there are serious health issues.
Quality Data ensures the effective embedding of risk management into the decision-making that underpins it1. In addition to the SII symptoms, uncertainty over data quality can have real costs for insurers, such as tying up valuable internal resources to validate the data, or incurring reinsurer surcharges for poor quality data. Such uncertainty can also lead to over-coverage of risks, resulting in the additional consumption of capital2.
- PWC Insurance Countdown, Feb 2010.
- Accenture Data Quality – Improving business decisions while addressing a key solvency II requirement, 2012
Simply put: in today’s digital age of customer centricity and ultra-competition, quality data is absolutely critical. Without this life blood running freely through the veins of your organisation, it becomes very difficult to make risk-based decisions, and achieve business optimisation, whilst retaining customer value.
Look Upstream – When faced with a challenge in life, our first attempt at solving the problem is to try to tackle it where it appears, rather than identifying the root cause of the problem. A few weeks ago, all the lights suddenly went out in my house. I tried resetting the trip switch but to no avail. After a painfully long exercise of trial and error, I finally looked under the sink and found the cupboard flooded with water (the waste pipe had fallen off), and a rather soggy extension cable for the washing machine. Here was the root cause of the problem. Unplug and all sorted!
In the quest for improving Data Quality, whilst we appreciate that there can be more than one primary data source, we strongly suggest looking upstream and focusing attention on your reinsurance system(s).
This may at first seem an unlikely place to look, just like checking the sink when the lights go off. The important thing to remember about reinsurance administration data is that you are not alone. Your reinsurer also has a vested interest and expends considerable resources checking whether the reporting they receive from your reinsurance systems is complete and accurate.
“But reinsurance is only one aspect of my vast and complex business!” you say? True, but your reinsurance systems touch every single in-force policy. They check whether you are over-retained on any given life, and make sure you neither over- nor under-pay the reinsurer. (Both can give you a nasty headache.)
Business Optimisation - Whilst conducting a full medical on your reinsurance systems, don’t forget that improving the quality of your reinsurance data feed can play a pivotal role in optimising not just your reinsurance, but your entire business model. Downstream, it also ensures the data input to your SII models, and SII reporting is accurate.
A healthy mind lives in a healthy body. And working in a healthy insurance company is much more fun than frequent trips A&E!
This was part 1 in a series of blog posts that I have planned for you. Over the next few postings we will investigate exactly how the reinsurer and your reinsurance system can contribute to clean, oxygen-rich data life blood within the entire cardio system of your company.
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