Less than 30 percent of respondents to an independent survey* conducted on behalf of Northern Trust (Nasdaq: NTRS) on the state of the global insurance industry said they were not concerned about the ability of their current systems to meet their future regulatory requirements.
The survey, conducted across the United States and Europe among more than 250 senior investment managers at global insurance companies, each with more than US$1 billion in assets, highlighted the investment operational infrastructure challenges insurance companies will face, particularly in an era of regulatory change and financial pressures.
“Insurers will imminently face a number of complexities due to regulatory pressures, ageing systems and a retiring workforce,” said Andrew Melville, head of insurance product and strategy, Europe, Middle East and Africa. “Whilst more than two thirds of insurers surveyed asserted their current investment systems perform well or extremely well, their abilities to be prepared for the investment infrastructure challenges ahead, will be significantly tested.”
Insurers in the United States will be required to comply with the Dodd-Frank Act while European insurers will be required to comply with the Solvency II directive. These regulations will increase demands for products to help manage compliance requirements, monitor risk management and report on investment performance.
Of the survey respondents, 50 percent cited their current systems as “customized with obsolete code” and the vast majority of respondents expect that up to a quarter of their staff will retire within the next five years.
“Insurance companies will require data in the right format and right degree of detail in order for their systems and processes to work,” added Melville. “As many of their legacy systems have been modified by multiple programmers over the years with little documentation, maintaining these existing systems will similarly be a challenge as programmers retire or leave the company.”
As a potential solution to the imminent challenges, close to a third of respondents believed insurers should move away from customized and hard-to-manage software vendors and systems in favor of standard industry platforms, provided by the outsourcing industry.