Proportionality and data in the insurance sector
“While diagnostic analytics may be used to identify real cost drivers and fraudulent claims, predictive analytics can be used to optimise the amount of time needed to process claims through the use of algorithms embedded into systems ”
A recent business breakfast organised by KPMG in Malta focused on the application of proportionality with regards to group supervision and provided attendees with the opportunity to embark on an exploratory journey of Data and Analytics.
Following the implementation of Solvency II, proportionality has become a topic close to the hearts of many insurance and reinsurance companies. The subjectivity of this principle makes it difficult for insurance and reinsurance companies and regulators alike to apply and ensure that Solvency II requirements are met. While this challenge remains at the solo company level, the challenges faced by groups are at a wholly different level given the complexities prevalent in group structures. It is also a challenge for companies to understand what is required to pull together and deliver information in an effective manner while still maintaining proportionality and being able to continue running profitable businesses.
Janine Hawes, director at KPMG in the UK and KPMG’s leader on insurance regulation within the European Regulatory Centre of Excellence Department, provided attendees with insight into the application of proportionality within the scope of group supervision. Her presentation provided diagrammatic presentations on the scope of group supervision and covered proportionality relating to groups, the different levels of group supervision, the impact of equivalence, the group solvency calculation including the fungibility and transferability of own funds, Pillar 2 and Pillar 3 requirements for groups and group governance. Janine also provided regulatory updates on Solvency II, risk management, consumer matters, governance and systematic risk initiatives.
When asked whether there could be a possibility that the efficient group structure that exists in Malta for tax purposes could become exempted from group supervision going forward, the speaker replied on the negative saying that this would not be in line with the requirements of Solvency II.
When asked about the potential impact of Brexit, Janine cautioned there would be a number of potential challenges if the UK were to leave the EU, including issues relating to Solvency II equivalence, identification of the calculation point for group supervision, the identification of group supervisor and college arrangements. In addition, some groups could need to revisit the group structure where there is currently reliance on passporting arrangements.
On the topic of Data and Analytics, Adrian Mizzi, Associate director in the IT Advisory team of KPMG in Malta, said: “Data is the new currency.” He explained that for a currency to be worthwhile it had to be used and not locked in a “safe”. Analytics is the way to unleash the potential of the data. Insurance and reinsurance companies are best served by using descriptive analytics to understand the real business drivers hidden in their data. While diagnostic analytics may be used to identify real cost drivers and fraudulent claims, predictive analytics can be used to optimise the amount of time needed to process claims through the use of algorithms embedded into systems. A large UK insurance company had reduced their claims processing time from two days to 30 minutes through the use of predictive analytics. He concluded that whether there is Big Data or Small Data, it is always a question of using advanced analytics to extract insights and more importantly, value from data – that is where data truly becomes a currency.
To that effect, KPMG has recently launched its Solvency II Vantage Analytics service. The introduction of Solvency II reporting is creating a huge volume of standardised industry data. KPMG believes that there is untapped potential within this data which insurers can use to gain deep insights into their own businesses as well as benchmark themselves against their peers. KPMG’s Solvency II Vantage Analytics enables insurers to take advantage of this.