Executives must take time to understand ORSA

These days, insurers have to deal with a large and growing number of regulations set forth by the federal government and other organizations, and that trend is going to continue in the near future with the introduction of the Own Risk and Solvency Assessment from the National Association of Insurance Commissioners.

The new mandatory reporting requirements known as ORSA will create a new regulatory ecosystem by which many major insurers will have to comply. Essentially, the program is designed to make sure that insurers are prepared for all potential risks they might encounter in the course of their normal business, through measures that ensure they have the resources to meet all capital needs both now and in the future.

The program was first approved in November 2011 but will not be required by the NAIC until January 1, 2015. Reports to the organization will include three sections, the first of which involves a description of an insurer's risk management policy, including how it identifies and prioritizes these issues, its appetite for taking it on, controls, reporting, and more. The second section involves measurements of risk exposure itself, both under normal circumstances and more stressed environments. Finally, companies will also have to spell out economic capital for both group and prospective solvency. The former will assess current standing and explain what they define as solvency, as well as measure potential issues anywhere from two to five years down the line.

There have reportedly been challenges for participating firms related to issues including data and systems, confidentiality and reporting, and individual companies' ability to assess their own standings in a way that regulatory organizations will find acceptable. Further, the organizations that collect and compile the data they receive from insurers will likely have some issues related to getting all information put together in a uniform fashion, and then assessing it.

Because the purpose of these assessments is to determine whether insurers are generally in good financial shape, executives may want to consider them to be a good chance for a company-wide tune-up, rather than a nuisance.