Confidence that the insurance industry will achieve Solvency II compliance by 1 January 2013 has dropped by 17 percentage points, according to research conducted by the Economist Intelligence Unit (EIU) on behalf of business advisory firm, Deloitte.

The report, which assesses UK insurers’ readiness for Solvency II, found that just under half of respondents (46%) were confident or very confident about the prospects for industry compliance, compared to 63% in 2010. However, insurers were more optimistic about their own chances of achieving compliance than of the industry as a whole, with 73% stating they were confident or very confident they will be ready for Solvency II.

65% of insurers said they expect to introduce new risk mitigation techniques due to Solvency II, whilst almost half (47%) said they may need to reorganise or restructure, compared to approximately one-third last year (34%).

Life insurers were more likely than non-life companies to say that they may need to reorganise or restructure (57% vs 36%) and were also were more likely to say that they may need to launch new products (33% vs 11%). 57% of life companies were more likely to have reached implementation stage, compared with just 46% of non-life insurers.

Rick Lester, lead partner of the Solvency II team at Deloitte, said: “The consequences of Solvency II include the number of companies looking at restructuring or relocating and the anticipated effect it will have on consumers as a result of changes to product mix, design and pricing.

“Despite this, our findings demonstrate that progress has been made over the last 12 months. All respondents have submitted budgets, which is a significant improvement on last year’s figure of 62%. Additionally, 41% have complete budget sign-off, compared to 13% in 2010, and 52% have reached implementation stage, in contrast to 21% last year. Board awareness has increased by 12 percentage points to 95% of respondents.”

In terms of integration programmes and resourcing, 43% said they will have a single initiative to roll out both Solvency II and IFRS Phase II, an increase of 20 percentage points since 2010, and all respondents have decided on an approach to the internal model. 60% of respondents have at least 60% of their complement of full time Solvency II employees already embedded. However, the remaining 40% have 40% or less of their dedicated Solvency II personnel in place, with as many as seven (12%) insurers having only embedded 20%. Training programmes are scheduled at 58 of the 60 insurers surveyed.

Overall, insurers ranked implementation planning and personal incentivisation highest in terms of priority for the six months’ ahead. Non-life insurers specifically cited implementation along with data infrastructure and handling, while life companies said the focus would be on personal incentivisation and risk governance systems.

Lester added: “In addition to these areas, clarification from regulators remains a top concern for the industry as insurers prepare for the new regime. The European Insurance and Occupational Pensions Authority (EIOPA) is under significant pressure to provide more straightforwardness and transparency to support the industry in its preparations, meaning that insurers will need to continue working with EIOPA and local regulators to address this problem. This approach will ensure that insurers can best prepare their organisations as much as possible for implementation.”

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