Meeting the Solvency II operational risk challenge
The EU Solvency II directive is a significant challenge for the insurance industry, but recent events in the financial markets have made it even more so. For operational risk professionals and insurance companies, there is a need to prepare for compliance with Solvency II but also to look beyond this to best practice in the industry. One area on which some operational risk experts are focusing at the moment is how to reduce complexity while improving communication and governance around risk. At a recent webinar, sponsored by OpenPages, three industry experts focused on the challenge of creating a robust operational risk governance structure in a multilayered financial services firm.
"Allianz is an organisation operating in about 70 countries," says Stuart Robinson, senior vice president, Group Risk, at the insurer. It has three major operating segments: life and health; property and casualty; and financial services. There are 22 operating companies reporting directly into the risk function in Munich, where Robinson is based. Several of those companies are big enough to be multinational insurers in their own right if they were not part of the Allianz Group. The firm then has four regional hubs that have more than 30 companies below them.
Robinson explains further: "Looking at the 22 companies, four of them actually operate globally. When we look at them from Munich we may think of them as being a single operating unit but, in fact, when they look at their businesses, each of them will have offices spread all around the world. Not surprisingly, given the number of companies and the number of segments, we have a very complex product range. We have everything from simple unit-linked investment products to traditional investment business, from motor and household insurance to specialty corporate insurance." The Incheon Bridge in South Korea, for example, is one of the longest suspension bridges in the world, for which Allianz provided the insurance and the risk management support.
As a result, says Robinson: "It's a difficult environment to put an operational risk framework into, and it's challenging for three main reasons. When we look at regulatory requirements, we need to satisfy multiple regulators. Our banking and asset management companies need to meet Basel II requirements, our European insurance companies need to meet Solvency II requirements, our Swiss business has to satisfy the Swiss Solvency Test, the UK company has to satisfy the Individual Capital Assessment framework, the German companies have to meet MaRrisk requirements, etc."