|New Modus Operandi - alloy wheels optional?|
From my perspective, it was particularly interesting to see that proactivity is recommended regardless of nature/scale/complexity, bearing in mind the first time I spoke to a Board of Directors at a tiny insurer regarding Solvency II preparations was in 2009 - only consultants could comfortably suggest that an new executive-level role is established, and Board agenda time is regularly set aside, only to explain the latest delays in multi-jurisdictional regulations (I certainly know what my old CEO would have said to that!)
That aside, they suggest that two major problems need to be overcome; that few insurers have a single view of regulatory risk; and that regulatory insight is poorly represented in the strategic workings of insurers, both of which are easy to agree with purely on circumstantial evidence.
Whilst this frequently reads like a paper written to justify bringing consultants in to compensate for failing in risk and compliance professionals' armoury, Deloitte make the following noteworthy assertions/recommendations in it;
- That most insurers prefer to 'wait and see' rather than be 'first mover' when it comes to regulatory preparations - after the Solvency II experience, does that surprise anyone?
- That "...Deloitte's view is that regulation can be regarded as a 'structural' driver of the insurance industry"
- That "...Deloitte's considers a regulatory dividend can and should be sought", which is not necessarily my experience of consultancies when on site, who (presumably for legal reasons) prefer to promote a gold-plated complaince approach to regulation-driven projects.
- Cost of compliance is now materially diluting return on equity in EU insurers
- That Conduct Risk is likely to become high profile across Europe over a longer period of time than its current flavour of the month feel, thanks to IMD2/PRIPS/MIFID
- National regulators are increasingly impeding on day-to-day running - examples given (all of which have a whiff of IMAP requirements about them), include documentation improvements and influencing risk appetite/capital allocation work.
- Regulation prep cost the European insurance industry €4.2-€4.7bn in 2012 - they go on to expand that to €8.1-€9.2bn over the last 3 years.
- UK industry will be subject to 29 new pieces of legislation of the next 5 years (surprisingly lower than the French at 35, and the Germans at 32!)
- That the "cost of doing nothing" while waiting for regulatory clarity may be significant - as significant as consultancy spend preparing for something which never arrives perhaps?
- That compliance functions are naturally struggling to cope with the current volume of initiatives
- They extrapolate an estimated €550m cost of Solvency II compliance preparations in 2012 into a €1.5bn-€1.8bn 'top 40 insurers' number, and a €2.4-€2.9bn figure for the whole industry - feels a bit light, bearing in mind 'UK plc' must have done the best part of £1bn on Solvency II alone in 2012.
- They quote one strategy director as saying that "Solvency II is killing European M&A..." - p10
Their recommendations (from p19) are too woolly in aggregate to help a normal practitioner - they are probably targeted more towards programme directors and managers - but the recommendation to establish a Regulatory Assessment and Response Executive with a suitable remit is a smart idea, even if from a practical perspective this might need to either be balled in with the responsibilities of an existing executive, or only be a mid/senior management role, in smaller companies.
These recommendations also include the marvellous suggestion to "embed a new modus operandi" - an expression normally reserved for profilers of serial killers, and perhaps the hardest sell since Isle of Man beach holidays.
PS I apparently missed the memo where the oft-ridiculed speech of Donald Rumsfeld used to support war against Iraq became de rigeur in risk management/insurance white papers. If there is one "known known" in this world, it is that I will never use that expression on the job!