Pearl River, N.Y. — As the 2007 Solvency II directive moves forward in Europe, ACORD examined the ways in which existing ACORD standards can help companies, brokers and regulators prepare to meet the requirements in a new white paper: Preparing for Solvency II: ACORD Data and Information Standards.
The Solvency II Directive has motivated companies to prepare for its implementation. Companies that write business in Europe already are evaluating their internal systems to meet these requirements. While the directive is not scheduled for full implementation until 2012, many forward-looking companies are already at work examining their capabilities, including their use of ACORD standards.
ACORD finds that forward-looking companies and regulators already are putting components of the new solvency regime in place to position themselves for the future. One way that companies, brokers and supervisors can advance their efforts is by utilizing existing standards for data and information flow, internally and externally.
"ACORD standards are already used by companies around the globe for improved internal and external data flow,” says Ann Henstrand, assistant VP, compliance and government affairs, ACORD. “With data quality and reliability essential parts of Solvency II, it's important to look at just how these existing standards and implementations can expedite preparations to meet the Solvency II requirements.”
By using standard ways to define data elements and messages, agreed upon by industry members, communication can be simplified as all parties use a shared vocabulary. ACORD data standards enable all participants across all geographies to utilize a common vocabulary from the most basic data element to transactions and business processes. Standards establish a shared understanding, allowing participants to communicate and share information more efficiently.
In its paper, ACORD says the components of Solvency II are usually described as three pillars.
Pillar I addresses financial solvency. Under Solvency II, companies will have the option of using internal models or a standard approach to calculate capital requirements. In either case, the critical component will be the calculation of the best estimate of liabilities and the margins, which are based on those estimates. In order to develop the appropriate value of liabilities, companies will need the most accurate data possible.
Conversely, Nicolas Michellod, a senior analyst at Boston-based Celent, authored a research report in April that says insurers might opt for their own internal model. “Celent believes that companies want to privilege the internal model approach for two reasons,” he wrote. “First, it is always easier to build on existing principles and processes instead of starting from scratch. Second, insurance companies tend to think that they are unique among their peers. Therefore, only dedicated risk management models can reflect their real particularities.”
ACORD, however, explains its reasons a standard approach may be better. The use of an industry standard allows companies to collect data from third parties in a consistent manner, using an extensive body of industry work, which will help improve their understanding of their risks, according to the paper.
Pillar II addresses corporate management and active supervision. Solvency II requires that directors and officers are appropriate and proper to serve in their roles. It also states that consultants, business service providers and brokers must be properly monitored through internal controls. All outsourced activities are subject to supervisory review, ACORD says. All types of service providers, including software developers, consultants, and outsourcers, may undergo a certification process ensuring that their work utilizes data exchange formats that meet in ustry standards.
Pillar III, according to the report, addresses the role of the market. One of the basic premises in the Solvency II Directive is that the market will itself act as a regulator. Companies will be required to make company risk management and performance data available to market analysts as well as consumers. Reporting data to supervisors and the public allows evaluation of a company's financial stability and market conduct. The ACORD data dictionary and exposure reporting can ensure that industry data is reliable, consistent and comparable, according to the paper.
Sources: ACORD, INN archives
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