Martin Sarjeant, global solutions leader for insurance at FIS, says that Solvency II was only the beginning of the industry's challenges
Post-Solvency II what is the main challenge the industry is working on?
IFRS 17, the new accounting standard for insurance contracts, is dominating industry concerns right now. A lot of insurers thought it would be delayed like Solvency II, but the date has now been set for 2021. Reporting under the standard will be driven by actuarial calculations, so systems like FIS' Prophet will be central to achieving compliance. We see the compliance challenge in two halves – one being calculation, the other governance and data flows. As we enhance our systems for IFRS 17, we are working on both of these important aspects.
How prepared are insurers for the new rules? How are you helping?
As of May this year, before the final standard was published, the industry was not ready and many insurers were still in wait-and-see mode. We know big companies that have started preparing and are well positioned because of investment in governance and Solvency II, but others have not even begun. It is a mixed bag. Delaying your preparations brings challenges in terms of people because resources are scarce out there. Latecomers will struggle to recruit the right talent. Our advice has always been to start early.
We have been working on IFRS 17 for the last three years both on the calculations side and governance. We updated our product libraries in June this year following the release of the standard and have been one of the first vendors to release software to the market standard. Our update focuses on calculating the core IFRS 17 values and includes a new IFRS 17 group calculations library which can be layered on top of existing Prophet models or other systems.
What lessons can insurers take from Solvency II for IFRS 17?
In terms of the implementation effort, insurers that have gone through Solvency II definitely have an advantage. The legacy of Solvency II is better governance systems, better reporting, better organisational alignment, real-time information and so on. With these foundations in place, firms are already in a stronger position for compliance with IFRS 17.
At the same time, some of the calculations from Solvency II, such as best estimate liability, are reusable for IFRS 17. We are therefore working with insurers to make sure they can reuse their investment in models and governance too – building calculations that they can layer on top of Solvency II models.
Nonetheless, clients should not be complacent just because they have implemented Solvency II, as IFRS 17 remains a significant project in its own right.
What other challenges should the industry be looking at right now?
The biggest challenge is governance. Insurers in some countries are still using spreadsheets with little in the way of process control and audit trails, and governance standards need to be raised. But we have definitely seen progress with more firms in emerging markets now looking to buy vendor-supported systems. We have been educating some of these markets in best practices and how to put technology to best use.
How are you looking at new technology in your systems?
One of our major focus areas is the cloud. Attitudes toward the cloud have changed massively in recent years. While there used to be concerns about security, now both insurers and regulators have become more convinced that the cloud is a safe place to store and process data, especially when managed by vendors like FIS with a strong reputation in software, cloud management, customer service and security.