Insurers under pressure from tight timescales and resource constraints

Timescale pressures and resource constraints were both rated by nearly 60% of insurance firms as the key challenges they faced when validating their internal capital models.

This is according to a report released by analytics consultancy LCP, which also revealed that despite these challenges, only 18% of firms reported having utilised some form of automation or advanced tools to assist with model validation.

In order to mitigate these pressures, 43% of respondents said that they outsourced some or all of the model validation work to external providers, with only one third of surveyees saying the work was completed by a dedicated internal team.

The scope of the task also troubled insurers, with more than 20% of insurers reporting resource intensive periods while completing validation functions such as analysis of change, sensitivity testing, profit and loss attribution, stress and scenario testing and back testing.

Streamlined processes

With under one fifth of respondents reporting that they used automation to assist with their model validation, LCP commented that there was a “major opportunity for firms to streamline processes and unlock capacity” and suggested that “even basic automation can significantly reduce manual effort, freeing up time for deeper analysis and helping firms gain a competitive edge through greater efficiency and deeper insight”.

Cat Drummond, partner at LCP, commented: “Validation is no longer just a compliance exercise, it’s a key pillar of how firms understand, govern and improve their capital models.

“This year’s review shows that, while firms are working hard to meet expectations, there are real opportunities to improve efficiency, embrace automation and ensure emerging risks are appropriately captured.”