This report updates the Chartis report Solvency II Technology Solutions 2014, focussing on risk management systems for the insurance industry. It provides:
- An overview of the demand-side drivers that are helping to change the market, and how insurance firms’ technology requirements have evolved as a result.
- An analysis of how the vendor landscape is evolving to address some of these requirements.
Against a backdrop of low interest rates, volatile markets and depressed returns, insurers globally need a more robust approach to managing risk. Healthy yields are hard to find, and the marketplace is driving firms toward higher-risk assets. But despite a challenging and unpredictable environment, many insurance firms use risk management systems primarily for regulatory reporting, missing out on the business insight that these systems can provide. Most insurers also find themselves in a regulatory lull, having implemented Solvency II or its local equivalents. But other regulatory challenges (such as International Financial Reporting Standard [IFRS] 4 and IFRS 17) are on the horizon. Insurers must think now of ways to repurpose or future-proof their current risk management systems to cope.
In fact, for increasing numbers of insurers, by employing an integrated approach to risk management – Enterprise Risk Management (ERM) – they can develop more efficient operations, cope with forthcoming regulatory challenges, and even generate new value.
Driven largely by firms’ attempts to address regulatory and data management issues, global expenditure on risk IT in the insurance industry has risen, and will reach about $15bn in 2017. But as most firms have now implemented systems to address the requirements of regulations such as Solvency II, we expect the rate of growth in expenditure to flatten over the next few years. Ultimately, firms will be expected to do more with less.
As strategic, top-down risk management becomes ever more necessary – and valuable – an important component of this new approach will be the Chief Risk Officer (CRO). In some insurance companies, the CRO has taken on a more complex, strategic role within the business, commanding an ever-widening remit, with responsibility for mapping risks such as operational risk (OpRisk) into capital models.
However, there is a growing disparity between what insurers increasingly want from their risk management systems, and what vendors are supplying. No vendor currently offers an integrated end-to-end ERM solution, focussing instead on hedge analytics, asset management, regulatory reporting and/or operational risk management. One powerful differentiator among vendors is economic scenario generation – in an unpredictable marketplace, the ability to map out potential scenarios to simulate their effects on the balance sheet is extremely useful.
Looking ahead, however, the disparity between requirements and supply is unlikely to change any time soon. That said, different insurance models, geographies and regulation – past and present – will all influence how vendors develop their risk management solutions. In the meantime, insurers may be able to develop the ERM systems they desire by using the increasing influence and expertise of CROs, who, using disparate technology elements, can orchestrate successful ERM to create the right solution for their organizations.
This report uses Chartis’s RiskTech Quadrant® to explain the structure of the market. The RiskTech Quadrant® uses a comprehensive methodology of in-depth independent research and a clear scoring system to explain which technology solutions meet an organization’s needs. The RiskTech Quadrant® does not simply describe one technology solution as the best insurance risk management solution; it has a sophisticated ranking methodology to explain which solutions would be best for buyers, depending on their implementation strategies.
This report covers the leading vendors offering risk management systems in the insurance space, including Aon Benfield, Effisoft, FIS, IBM, MEGA, MetricStream, Moody’s Analytics, Nasdaq BWise, Oracle, QRM, SAP, SAS, SecondFloor, UBS Delta, Willis Towers Watson, and Wolters Kluwer Financial Services.