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The Senior Managers & Certification Regime to Insurers – An Opportunity for IT Transformation

By Henry Umney, CEO, ClusterSeven

Recently, the PRA published proposals to extend the Senior Managers and Certification Regime (SM & CR) to insurers. Fundamentally, via this extension, the PRA aims to put the insurance industry under the same level of scrutiny as the banking sector, by enforcing individual accountability as a means of protecting customers and minimising market abuse.

These proposals reflect the important roles of underwriters and actuaries in the running of insurance firms. The regulatory framework is looking to ensure that the individuals who run insurance organisations have defined responsibilities and that they manage their business with integrity and honesty. The rules are also looking to proportionately enforce the Solvency II requirements for the smaller insurers who fall outside the latter’s scope.

While at this stage, the proposals are in consultation (until 03 November 2017) with the final rules expected to be published in 2018, actuaries should be proactively reviewing their processes to prepare for the SM&CR compliance in the near future. This is a great opportunity for insurers to take an IT-led transformation approach to modernising and standardising modelling platforms, managing data and automating reporting to minimise operational risk and ensure compliance. A key element within this transformation programme is the Actuaries’ system of choice, the spreadsheet.

Insurance organisations deploy multiple systems to manage and ensure the accuracy and integrity of data in the business. However, insurers rely very heavily on spreadsheet applications for their day-to-day business processes, complex calculations and financial manipulations. Due to the complexity of the calculations performed by Actuaries, these files can be numerous with data being collated from a variety of internal and external sources. Often, knowledge of the existence of these files and the information they contain is not widely understood outside of the Actuarial function.

Transparency of the supervision and management of these complex spreadsheet files for data quality and integrity is essential to ensure compliance with the SM & CR and Solvency II. Chief Actuaries should consider adopting automated spreadsheet monitoring to provide the visibility and deliver an in-depth understanding of the spreadsheet landscape they are dependent on in running their day-to-day operations to the rest of the organisation. Automation not only provides the evidence of controls Actuaries currently have in place, which is required under SM & CR, but can also help present early sight of anomalies in the data sources they are reliant on. This enables the establishment of technology-led change management processes, thereby enhancing the efficiency, accuracy and integrity of information as routine.  Most crucially, transparency of the spreadsheet landscape will contribute to insurers’ wider model governance initiatives too.

SM & CR and Solvency II aren’t one off processes and non-compliance has personal implications for the Chief Actuary and other senior managers – not to be taken lightly.