August 2010

20 things for mutual insurers to do in the next 500 days

Discounting weekends, bank holidays and other absences there are around 500 working days until Solvency II goes live. Most firms have now begun to make significant plans for transition to Solvency II. However the date, somewhere around the end of 2012, also witnesses an enormous range of other issues that will have a profound effect on the way that many businesses operate in the future.

For many mutual insurers, whilst Solvency II marks a significant process piece of work, it will have far greater impact on compliance and actuarial workloads and in reengineering governance arrangements, than it will on capital requirements or business strategy.

By comparison, the Retail Distribution Review may well result in a far more fundamental challenge to the products a firm offers, how it describes and how it distributes them. The strategic consequences may therefore be profound.

And the potential for significant organisational change doesn’t end there. Our list of the 20 most significant planning issues for mutual insurers over the next two and a half years focuses on four dimensions: international standards; UK regulation; government actions; and competitive forces. Any one of the 20 items may materially affect a mutual, and taken as a whole they call for a fully co-ordinated plan of action, to ensure the firm is properly prepared and in good shape for the future.

Of course, depending on an individual business there are plenty of other things happening that might rank higher than some of our list. Indeed it was a struggle to keep the list down to 20 items, such is the scale of change happening at present.


20 things for mutual insurers to do in the next 500 days

A. International standards

1. Solvency II and new regime for non-Directives

2. Accounting rules overhaul- IFRS

3. Change to other European Directives (such as IMD/ PRIPs/ MiFID)

B. UK regulation

4. FSA now more intrusive and becoming a policy implementer more than developer

5. Review of mutual capital along with the wider with profits review

6. Retail Distribution Review

7. Reverse stress testing, and the need to plan for failure

8. The new conduct strategy and its stretch toward product regulation

9. New corporate governance arrangements for banks being translated to mutuals

10. New regulators to replace FSA and resulting reprioritising of regulatory objectives

C. Government forces

11. Austerity measures and their impact on firms and consumers

12. Taxation changes, especially new tax rules for insurers

13. Equalities Bill and impact on insurance pricing

14. Governance review for mutuals by HM Treasury

15. Changes to savings products including pensions and the Child Trust Fund

D. Markets

16. Competition increasing costs and challenges of writing material new business and squeezing out smaller firms

17. Ripple effect of recent changes and regular announcements within large plc insurers

18. The potential for further consolidation amongst mutuals

19. Uncertainties in markets and equities

20. Risk of falling consumer confidence and ability to save

 So an implementation plan for Solvency II, however well articulated, that does not take account of all of these other factors is unlikely to be effective. Mutuals therefore need to co-ordinate planning, and accept that the costs of being in business will increase further.

We must also hope that regulators and legislators take proper account of the scale of change affecting consumers and firms, and therefore properly co-ordinate their plans, take account of the costs and consequences of their actions, and avoid the temptation to be overzealous in their expectations.

On the positive front, firms that plan early and well are likely to see a number of opportunities from the changes coming in over the next two years- including better management information, tighter controls and the prospect of picking up business from firms that have to take time out to readjust to the changing environment. Good luck!

Association of Financial Mutuals,

August 2010

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