EY life insurance outlook highlights new solvency standard

2017 EY Canadian Life Insurance Outlook shows five main factors - regulations, technology, economy, consumer expectations and talent

EY life insurance outlook highlights new solvency standard
Life insurance companies in Canada, already in the midst of a wave of regulatory change, have more on the way as a new solvency standard is introduced early next year. 

The Office of the Superintendent of Financial Institutions (OSFI) recently released the final version of its Life Insurance Capital Adequacy Test (LICAT). This replaces the Minimum Continuing Capital and Surplus Requirements (MCCSR), which have been in place since 1992, and is due to be enacted  on January 1, 2018.

The new standard will require a more stringent capital ratio and also updates the sensitivity of the ratio to changes in the business and economic environment.

UK-based firm EY, formally Ernst & Young, released its 2017 EY Canadian Life Insurance Outlook last month and the new regulatory standard was a key focus. 

EY’s analysts identified five major external factors for the Canadian life insurance market in 2017 – regulations, technology, economy, consumer expectations and talent. Of those factors, regulations and technology were deemed the most impactful, which shouldn’t come as too much of a surprise to industry observers. 

Janice Deganis, national insurance leader with EY, explains how the industry’s evolution is gathering pace, starting with how it is regulated. 

“MCCSR has been in place since 1992, so this is a more sophisticated model,” she says. “It replaces a factor-based model with different models that can determine the majority of your insurance risk. It uses a shock-based methodology rather than straight factor-based, like how much capital would you need if there was some sort of adverse scenario.”

Insurance providers are also coming to terms with the lightning-fast pace of change when it comes to the digital era. You can’t stop progress, so the only solution is to fully embrace it. 

“Technology is changing things across the industry, both in how you are dealing with customers and how you reduce costs in overall operations,” says Deganis. “That should offset some of the costs associated with increasing regulatory demands.” 

One of the main areas technology is improving the business is with the customer experience. This comes in different forms and is a natural response to a general public that expects much more from providers. 

“Customers are demanding faster service and faster turnaround, both with underwriting and other areas like claims management,” she says. “The speed you can reply to customers is increasingly important. Also the different ways – not just through an advisor, or on the internet, or through a call centre. The customers want multiple ways to reach out.”

The EY 2017 outlook also highlighted the industry’s difficulty in attracting the young talent it needs to fully harness the capabilities of this new technology age. In Deganis opinion, recruitment is an issue the industry needs to emphasize right away. 

“From a talent perspective, it is trying to find new people that can deal with all of these changes,” she says. “In our outlook, we ask how appealing is the insurance industry for new graduates? You have to have sales people that can sell the products, but also people that can be data scientists or risk specialists. You need those type of people within your organisation.” 

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