The Future of Insurance Solvency Regulation and Technology in the US

by Donald Light, November 17, 2009
Industry Trends
North America

Abstract

The issue of solvency has moved front and center for insurer boards, senior managers, regulators, and rating agencies. To respond successfully, insurers must map how they will control their futures. To do so, they must have the right technology and use it properly.

The financial crisis and recession make significant change in US solvency regulation more likely. In a new report, The Future of Insurance Solvency Regulation and Technology in the US, Celent examines how the financial crisis will change solvency regulation.

Celent believes that the direction the NAIC and the state Departments of Insurance will take is broadly similar to the Solvency II Framework Directive recently adapted by the EU for a 2012 implementation. However, insurers in the US cannot wait for complete certainty. Rather, they should follow four broad principles: view changing solvency requirements as an opportunity; use an ERM framework to embed solvency management in operations; build the solvency technology stack deliberately; and make solvency metrics transparent.


"If insurers have learned nothing else from the financial crisis, they now know that the range and size of risks they face are more difficult to predict than previously thought," says Donald Light, senior analyst with Celent's Insurance Group and author of the report.
 
"The responsibilities of all US insurers to their policyholders and owners require improved solvency practices. For most insurers, building better solvency capabilities and practices will take a number of years. It would be a mistake to wait for the NAIC/DOIs/rating agencies to act first,” he adds.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

Introduction

4

Real Climate Change: The Regulatory Climate in the US

5

Solvency Regulation in the EU: Solvency II

8

Solvency Regulation in the US: From Rule-Based to Principle-Based

10

Three Frameworks and a Synthesis

12

The Solvency Technology Stack

17

Conclusions

20

Leveraging Celent’s Expertise

22

Related Celent Research

23

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