(February 24, 2014) — Most insurers believe their existing systems are not up to the regulatory and financial pressures they face, according to data from Northern Trust.
A survey of more than 250 senior investment managers at global insurance companies based in the US and Europe, each with more than $1 billion in assets, saw more than 70% admit they were concerned about the ability of their current systems to meet their future regulatory requirements.
“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 for EMEA at Northern Trust.
“While 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 US 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% cited their current systems as “customised with obsolete code” and the vast majority of respondents expected that up to a quarter of their staff would 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.”
Outsourced white-label solutions are being considered by almost a third of insurers, driven by the desire to move away from customised and hard-to-manage software vendors, Northern Trust said. The full report can be found here.
The findings echo that of State Street, which earlier this month found that many insurers were not reaping the benefits of good data management systems, by not integrating their data into their investment strategy.
Although 83% had increased their investment in analytics and data harvesting over the past three years, only a third were deemed to be reaping the full benefits from their data and analytics capability, according to State Street.
Elsewhere, JP Morgan Asset Management has hired James Peagam as European head for its Global Insurance Solutions division. Peagam will be responsible for building and developing investment strategies and solutions for European insurers and reinsurers.
Prior to joining JP Morgan Asset Management, Peagam was head of sales strategy for the EMEA financial institutions group at BlackRock. He also held insurance roles at the Royal Bank of Scotland/ABN AMRO Bank in the US and EMEA, and is a qualified engineer.
Speaking about his appointment, Peagam said: “Insurance companies are facing increasing pressure to generate yield and income from more diverse investments and there are few managers that stand out when it comes to building their in-house capabilities to meet these requirements.”
JP Morgan Asset Management manages in excess of $100 billion for insurers, as of September 30, 2013, of which more than $60 billion was in general account assets.
Related Content: Insurer Snaps Up Asset Management Arm of Troubled Lender and Plummeting Investment Income Pushes Insurers to Diversify