Robert Gothan, CEO and founder of Accountagility – the leading solutions provider for the finance function
Businesses in every sector have been experiencing a prolonged period of uncertainty since the UK’s decision to leave the EU on 23rd June 2016, not least those in the insurance industry, whose regulatory requirements are largely governed by directives and legislation coming out of the EU.
This level of uncertainty looks set to continue, with the High Court’s recent ruling that MPs are permitted to vote on the referendum and no set date as to when Article 50 will be triggered. For businesses in the UK, this means an even longer wait before any plans to leave the EU officially are put into action, and equally troubling uncertainties as to the short, medium and long term financial plans for their business.
With the news agenda on the effects of Brexit still altering on a weekly, if not daily basis, organisations in the insurance industry must be able to factor any new information into their planning documents as a regular occurrence. Many firms are still struggling with legacy systems, however, and are unable to amend the data in these plans at the speed necessary for effective, forward-looking plans.
The impact on Solvency II
Changes to legislation are a common occurrence in the financial services sector, with new rules and requirements being introduced on a regular basis. One of these more prominent directives is Solvency II, a policy that was designed to regulate the amount of capital that insurance firms must hold to reduce the risk of insolvency.
When it was first introduced, this directive was welcomed by the insurance industry and firms in the UK even had an active role in its introduction. Over the past 12 months however, support for the regulation has decreased, with Grant Thornton finding that only 17% of insurance firms believe the directive has been worth the effort.
As a result of the referendum, the Treasury Select Committee is now conducting an inquiry into the future of Solvency II in a post-Brexit landscape. Given the sheer level of investment into this directive from a technological, financial and resource perspective, it is unsurprising that firms are not necessarily seeing the benefits to the business.
Planning for the post-Brexit landscape
Planning tools that are agile enough to cope with vast and fluctuating amounts of data, as well asany changes to regulatory requirements, will be crucial for firms in the insurance sector going forward. Post-Brexit planning is a long process which will require several scenarios to be dealt with and changed simultaneously in the same document, and as a result, using tools such as Excel will not be adequate.
For insurance firms writing business across several different countries and currencies, accounting for fluctuations in exchange rates has always been a crucial part of their planning systems, and this will have only increased following the referendum. With Brexit triggering a weak Sterling and most recently, the US election result leading to market volatility, the importance of planning and monitoring forex has never been greater. By adopting an agile planning tool, however, firms will be able to forecast for movements in the exchange rates of different currencies more easily and also change plans quickly in response to any sudden fluctuations.
Whilst it remains to be seen what changes will be made to Solvency II, and what the future holds for the stability of the world’s economic markets, insurance firms need to incorporate planning tools that will meet the needs of the business both now and in the future. It is inevitable that further legislation will be introduced into the insurance sector in the future, regardless of what happens to Solvency II. When this happens, it will be the firms that have updated their planning tools and their technology that will be the best prepared for the changes that come their way.