Solvency II, which comes into effect on January 1st, 2016, represents a significant change to the way in which the insurance sector is regulated in the EU. In this, the first of a series of four blogs aimed at providing an overview of the data implications of Solvency II, we examine the impact on data flows both within companies and throughout the market as a whole.
Solvency II requires insurers and their providers to employ and report a complex range of quality assured data on their assets and liabilities at both instrument and entity level. Effective compliance will necessitate timely reporting of accurate, consistent and granular data.
The need to satisfy Solvency II’s requirements creates a strong business case for a centralised data repository. Businesses should also take advantage of the opportunity to maximise efficiencies by creating internal data flows which reroute this data automatically to where it is needed to address each of the three Solvency II Pillars (Capital Requirements, Governance and Supervision, Transparency and Reporting).
Redistribution of Data: Potential for IP Infringement
Insurers are increasingly looking to external providers as a source of accurate, consistent data sets for compliance. Typical workflows involve this information passing through the hands of multiple entities, for example from an asset manager via a fund administrator to an insurer, and thereafter on to regulators.
As part of such workflows, data subject to intellectual property rights is sometimes being redistributed by entities that do not hold the relevant licence to do so. To avoid legal risks, it is vital that any insurer, asset manager or third party involved in redistributing such data has the required contractual arrangement in place with the data owner.
Optimising and Controlling Data Flows
A standardised, documented data governance framework and data ownership model is essential for effective compliance. This should cover who creates, consumes, amends, updates and uses the data and in what context they do so, as well as establish centralised definitions for all relevant data elements.
Some key elements to consider around data management and control include:
- Enterprise Data Management (EDM) systems – Often outsourced as a cloud-based system, these provide a single shared resource for gathering, processing, storing and accessing data.
- Integrated databases – Again often hosted externally, data warehouses facilitate the consolidation of diverse data feeds, which may be received from providers in a wide range of formats.
- Efficiency of internal flows – Data created under one Pillar may need to be used or reported under another; efficient data flows should be created which reroute information automatically to where it is needed.
- Higher frequency reporting requirements - As well as meeting new quarterly reporting requirement, insurers must be ready to provide ad hoc reporting at a similar level of granularity as and when required by regulators.
Establishing rigorous data management processes will significantly improve data governance and thereby mitigate regulatory risk by ensuring conformity, integrity, reliability and traceability of data. This will also minimise the risk of disputes between business areas that use the same data in different ways, as well as creating efficiencies which can benefit other regulatory reporting.
Solvency II requires insurers to process more data within shorter timeframes than ever before, so the importance of efficient systems for gathering, manipulating and reporting data cannot be overemphasised.
Read about this topic in more detail in our latest whitepaper “Solvency II: Understanding the Data Implications”. Stay tuned for next week’s post, which will look at the challenges of data quality and consistency.