Please use this identifier to cite or link to this item: http://hdl.handle.net/1893/30342
Appears in Collections:Accounting and Finance Journal Articles
Peer Review Status: Refereed
Title: Should the insurance industry be banking on risk escalation for solvency II?
Author(s): Bryce, Cormac
Webb, Robert
Cheevers, Carly
Ring, Patrick
Clark, Gregory
Keywords: Operational risk
Risk escalation
Risk regulation
Basel II
Solvency II
Issue Date: Jul-2016
Citation: Bryce C, Webb R, Cheevers C, Ring P & Clark G (2016) Should the insurance industry be banking on risk escalation for solvency II?. International Review of Financial Analysis, 46, pp. 131-139. https://doi.org/10.1016/j.irfa.2016.04.014
Abstract: Basel II introduced a three pillar approach which concentrated upon new capital ratios (Pillar I), new supervisory procedures (Pillar II) and demanded better overall disclosure to ensure effective market discipline and transparency. Importantly, it introduced operational risk as a standalone area of the bank which for the first time was required to be measured, managed and capital allocated to calculated operational risks. Concurrently, Solvency II regulation in the insurance industry was also re-imagining regulations within the insurance industry and also developing operational risk measures. Given that Basel II was first published in 2004 and Solvency II was set to go live in January 2014. This paper analyses the strategic challenges of Basel II in the UK banking sector and then uses the results to inform a survey of a major UK insurance provider. We report that the effectiveness of Basel II was based around: the reliance upon people for effective decision making; the importance of good training for empowerment of staff; the importance of Board level engagement; and an individual's own world view and perceptions influenced the adoption of an organizational risk culture. We then take the findings to inform a survey utilizing structural equation modelling to analyze risk reporting and escalation in a large UK insurance company. The results indicate that attitude and uncertainty significantly affect individual's intention to escalate operational risk and that if not recognized by insurance companies and regulators will hinder the effectiveness of Solvency II implementation.
DOI Link: 10.1016/j.irfa.2016.04.014
Rights: This article is available under the terms of the Creative Commons Attribution License (CC BY - https://creativecommons.org/licenses/by/4.0/). You may copy and distribute the article, create extracts, abstracts and new works from the article, alter and revise the article, text or data mine the article and otherwise reuse the article commercially (including reuse and/or resale of the article) without permission from Elsevier. You must give appropriate credit to the original work, together with a link to the formal publication through the relevant DOI and a link to the Creative Commons user license above. You must indicate if any changes are made but not in any way that suggests the licensor endorses you or your use of the work.
Licence URL(s): http://creativecommons.org/licenses/by/4.0/

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