...despite its acceptance of the inevitable
A survey conducted by leading business and financial adviser Grant Thornton UK LLP has found that only 6% of respondents believe the costs of Solvency II are 'reasonable'. By contrast, the survey finds that more than three quarters (76%) of respondents consider the costs of Solvency II to be disproportionate and nearly two thirds (65%) believe the value added by Solvency II will not justify the expense incurred.
More than three quarters (77%) of respondents believe that Solvency II is using up valuable resources that could be far better utilised in other areas; while 62% felt that the preparations are distracting senior management from the day-to-day running of their business.
Last conducted in 2012, Grant Thornton's survey also identifies an increase in the proportion of participants who believe that Solvency II is the most appropriate way to run their business – from one in four participants in 2012 to one in three currently. It also identifies a 17pp increase in the number of respondents believing Solvency II to be a 'necessary evil' – from 27% in 2012 to 44% in 2014.
Simon Sheaf, Head of Actuarial and Risk at Grant Thornton UK LLP, commented: "Increasingly, the sector is begrudgingly accepting Solvency II as a 'necessary evil', and recognising that it will bring some benefits. However, it is clear that they do not believe that those benefits will be significant enough to justify the costs. The volume of work and resources that have gone into preparations for Solvency II compliance have been astounding and insurers have substantial reservations regarding the impact this has had on their businesses."
The most significant constraints for the insurance market in implementing Solvency II remain unchanged from Grant Thornton's 2012 survey: ambiguity over the regime's requirements and a lack of resources. Respondents also pointed to data issues, a lack of understanding of the new regime and insufficient Board engagement as other barriers to implementation.
Although the vast majority (94%) of respondents agreed with the principles of Solvency II, three quarters (74%) believe that the principles have been ruined by the implementation.
Simon added: "The industry has largely been in favour of the principles behind Solvency II for some time. However, the opacity around implementation deadlines and precise requirements are continuing to make the pill-swallowing an even more bitter exercise. Businesses rely on certainty, and despite the role of risk in the insurance industry, the sector still feels as though it's being unnecessarily burdened by the complexities of Solvency II."
The majority of participants surveyed were optimistic about the new implementation date, with 76% agreeing that it would 'go live' on 1 January 2016, and nearly all respondents (98%) suggesting their organisation would be prepared to do so if necessary. However, nearly two fifths (39%) believe that less than 70% of their industry peers would be able to do so.