Insurance models: the impact of the regulatory and accounting environment on their development and management

Measures of risk and performance in the management of insurance organisations
The question of measuring risks and performance is central to an insurance company being properly managed. The aim is to define measures that are representative of the insurance ecosystem using relevant quantitative indicators so that decisions can be made by managerial staff.  These measures and indicators must be adapted to represent risks, create value and performance of the organisation while still being founded on intelligible baselines (especially in terms of validity limits) by their users. Without this, their credibility in effective decision-making would be weak.

Governance of models and decision-makers’ behaviour in relation to these models
Insurance companies have increasingly sophisticated in-house models which are, theoretically, at the core of the decision-making system. However, this only applies to two attitudes to risk as described by David Ingram and his co-authors. “Managers” representing the decision-makers that might follow the traditionally-accepted enterprise risk management strategy (ERM or GRE) need a sophisticated in-house model to guide risks for the entire company.

Modelling policyholder behaviour
Understanding policyholder’s behaviours is one of the big challenges faced by insurance companies ​​due to the lack of data in extreme situations. The profitability of the insurers is closely linked to this component, and massive lapses could cause severe damages to the company. However, this is hardly predictable since it depends on many (very different by nature) risk factors.”

Robust proxies for use in calculating sensitivity and constituting model points, etc. to rapidly obtain assessments with reasonable calculation times Apart from annual calculations to produce the annual accounts and determine capital requirements (MCR and SCR), the introduction of a new prudential regulation will produce supplementary assessments on a quarterly basis together with a prospective dimension as part of the ORSA.