Solvency II v. Basel II
The insurance industry is presented with a major challenge.
Is it willing to learn any lessons from the banking industry when it comes to the management of risk and allocation of capital? This is the same industry that stands accused of blowing up the world.
Why learn lessons from bankers when most insurance companies remain innocent of any mischief-making in this regard?
Solvency II provides the following broad challenges in terms of its implementation:-
- building predictive risk models;
- ensure that data used is robust with suitable integrity controls;
- validating models to ensure that they do actually work;
- educating senior management to understand how the models operate;
- proving that the output of the risk models is actually used in the day to day running of the business;
- building an appropriate risk management framework for the organisation.
These are the very challenges that banks faced when implementing Basel II during the last 6 years or so. Many mistakes were made and many lessons were learnt regarding the implementation project.
So my plea to insurers. Please please please listen to the bankers.