Insurance and reinsurance firms seeking approval to use an internal model must demonstrate to the regulator that their data management approach meets the complex requirements set out under the Solvency II Directive. They must also show that Solvency II is integrated into their business.
While most insurers already have an adequate data policy in place, they must still undertake substantial work if they are to achieve the required data quality standards and demonstrate compliance with data governance controls.
As the deadline for submission of internal model approval approaches, insurers can improve their ability to demonstrate compliance with the Solvency II requirements by focussing their data management effort on a number of key challenges.
Focus on adoption of the data policy rather than the policy itself
At this stage, further work on your data policy is unlikely to make a material difference (notwithstanding any potential changes to the legislation), but assuring adoption is likely to be critical to meeting the regulator’s use test. One requirement is the need to demonstrate that the board and the business are fulfilling their data governance obligations under the data policy. For example, are they using the Own Risk and Solvency Assessment (ORSA), linked to the internal model, to inform Board discussions on the business’ risk appetite?
Test whether your data quality standards are sufficient
While you are likely to have started to put formal data quality standards in place, the onus is on you to demonstrate that these standards are sufficient. Sensitivity testing the quality of the dataset in the internal model and technical provisions will allow you to do this. Including an assessment of data quality in regular reporting to decision-making bodies within the business will also help you to demonstrate that quality standards are being used effectively.
Make sure data governance controls extend across the business
You must be able to demonstrate that you can assure the quality of your data as it is created, processed, stored and transformed, a process that encompasses suppliers, legacy systems and new systems. Data quality reporting at the data warehouse may tell you a proportion of what’s wrong with data, but unless data governance controls extend across the business the data management function will always be reacting to data quality problems some time after the problem arises.
Recognise that getting data to the internal model, not delivering the data warehouse, is the priority
Most insurers are building/adapting a data warehouse to funnel and manage data going to their internal model and solvency balance sheet items. However, getting data to the internal model, technical provisions, solvency balance sheet items and ORSA must take priority over other system functions – data quality checking and reporting from data warehouse delivery can be decoupled by doing them elsewhere in operational systems if necessary.
PA is currently working with a number of European insurers to help them establish whether their proposed data management solutions meet all of the Solvency II data requirements.
Please contact us now if you are intersted in hearing more about how PA can help you to improve the quality of your internal model submission.
Join our Solvency II Delivery Forum
PA hosts regular discussions and events to give Solvency II programme directors across the insurance industry the chance to share their experiences. The next of our quarterly events is due soon and will provide an opportunity to meet peers in other insurance companies and exchange views on what the directive means for your organisation.