Mastering the regulatory marathon with the help of modern standard software – on time, completely and cost-effectively

Whether at European or national level, much legislation has been passed forcing the insurance industry to continuously implement comprehensive regulatory requirements. The German Life Insurance Reform Act (Lebensversicherungsreformgesetz – LVRG), Solvency II and the Insurance Distribution Directive (IDD) are just a few examples from the recent past. The EU General Data Protection Regulation (GDPR) came into effect in May 2018, which affects insurers in particular – after all, data processing and analysis are key components of an insurance business. Although the insurance industry has already committed itself to compliance with comprehensive data protection regulations in the form of the data protection code of conduct of the German Insurance Association (GDV), the provisions of the GDPR go even further.

But that is not nearly the end of the regulatory marathon:

• with IFRS 17, new accounting rules will soon apply for the insurance industry. This complex set of rules is expected to come into effect on 1 January 2023. The new accounting standard regulates the principles with regard to the identification, method, valuation, reporting and the disclosures for insurance contracts. Companies that are required to or want to report, as well as create quarterly financial reports, in accordance with IFRS need an opening balance sheet as early as 1 January 2022. In October 2018, legislators reformed the regulations regarding additional interest reserves. The new regulation limits the annual changes to the benchmark interest rate. The new process – the so-called corridor method – was developed by the German actuarial association DAV in collaboration with BaFin.
• The German Act to Strengthen Occupational Pensions (Betriebsrentenstärkungsgesetz – BRSG) came into effect at the beginning of 2018, which – in addition to a series of improvements to the tax- and social-security-related legal framework conditions – also creates a completely new model for company pension schemes.
• During a hearing on 18 April 2019, the Federal Ministry of Finance presented the corresponding professional associations with a revised version of the draft legislation that contains a cap on commissions for life insurance and for residual debt insurance. Legislators are planning to limit the acquisition commissions and remuneration for brokers.

From 2020, as part of the so-called EbAV II directive, corporate pension institutions will be subject to new requirements with regard to accounting, as the supervisory authorities of BaFin announced in their journal in February 2019. The regulation – which is based on a decision of the European Insurance and Occupational Pensions Authority (EIOPA) – became German law on 13 January 2019. For pension funds, this means expanded governance and information obligations and a bolstered risk management with regular risk self-assessments. Annual data is to be provided to BaFin for the first time in 2020 for 2019.

High costs without any competitive advantage

Whatever the new rules are called, the bottom line is that insurance companies have to be more transparent, comply with complex new rules and implement expensive regulatory requirements without deriving any competitive benefits from doing so. All this poses great functional and technical challenges for the industry, which is going through a difficult period in any case. Implementing these obligations requires extensive adjustments to IT systems and business processes. Furthermore, some insurers are using outdated IT systems that can only be expanded to include the new functionalities required by law requiring a great amount of time and at great expense. All this puts massive pressure on earnings and efficiency, and therefore on the competitiveness of companies.

High-performance standard software is indispensable for the implementation of regulatory provisions

How can this wave of new regulations be implemented on time and with legal certainty, but effectively and cost-consciously at the same time? It is only feasible with high-performance and state-of-the-art standard software solutions. The deployment of upgradeable standard software that can be easily integrated is an enormous relief, because this shifts most of the tasks created by implementing new regulatory demands onto the software provider. And there are significant cost benefits compared with an in-house development, because the costs are distributed across all users of the software. Insurance companies finally regain the room to manoeuvre they need to concentrate on tasks aimed towards differentiating themselves from the competition.

Regulatory compliance with the solutions from msg life

As the leading supplier of software and advisory services for the European insurance industry, msg life offers a range of standard solutions for life insurance companies and providers of company pension schemes that ensure the timely, complete and cost-effective implementation of regulations. The upgradeable software solutions are developed on an ongoing basis in cooperation with customers. The software solutions have already proved their worth in practice and are in operation at many well-known companies. 

Upgradeable, state-of-the-art policy administration system that covers all relevant business processes in a life insurer’s core business and combines them with extensive product development options. The solution ensures compliance with statutory requirements as standard.

Upgradeable standard solution that manages and records all business processes related to the management, payment and documentation of all relevant pensions and other benefits. This also includes the on-time and automatic communication with the competent authorities.

Upgradeable standard software that enables the transparent and largely automated processing of state subsidies for Riester contracts. The system manages the individual workflows from the application for subsidies through to the post-contractual obligations, even several years after the contract has been terminated. The standard software takes care of all communications between the provider of the Riester contract, the ZfA and the beneficiaries of the subsidies.

Upgradeable standard software for the automation of tax-related communication processes. The solution completely covers all workflows and reports required by law for the transmission of contribution-related data to the ZfA and the BZSt. It even meets the requirements for the implementation of the KiStAM procedure and the necessary process steps within the framework of the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA).

Our standard software msg.Tax Data comprises several independent components. msg.Tax Data – tax exemption orders automates the management of tax exemption orders and non-assessment certificates at insurance companies, whereas msg.Tax Data – private medical insurance certification process automates the certification process for wage tax deduction features in private compulsory health and care insurance. msg.Tax Data – Pflege-Bahr automates allowances processes and reporting procedures for private supplementary care insurance (Pflege-Bahr).

msg.Pension Data automatically provides data for the digital pension overview. The standard software receives, processes and replies to the requests for pension information. msg.Pension Data takes the annual pension information from the policy administration via standardised interfaces and makes it available to the ZfD.