Effective Governance and Risk Management in the Insurance Industry
Learn about the importance of governance and risk management in the insurance sector and how it aligns with principles-based regulation. Explore relevant ICPs, building blocks of sound practices, and key strategies for ensuring proper oversight and control mechanisms within insurance companies.
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Assessing the governance and risk management of an insurer and its insurance group Regional Seminar on Reinsurance and Other Forms of Risk Transfer Bogot , Colombia, 26-28 May 2015 Gunilla L fvendahl Senior Financial Sector Specialist Restricted
Why focus on governance and risk management? Risk-based/principles-based regulation and supervision means moving away from detailed, prescriptive rules and relying more on broadly stated principles, which set the standards by which insurers must conduct their business. Principles often describe a desired outcome without providing the details of how this outcome can be achieved. The responsibility for achieving this outcome is instead being placed on the board and the senior management of the insurers By focusing on governance and risk management, problems can be detected earlier 2 Restricted
Relevant ICPs Focus Corporate governance (ICP 7) Risk management and internal controls (ICP 8) Public disclosure (ICP 20) Methods Supervisory review and reporting (ICP 9) Preventive and corrective measures (ICP 10) Enforcement (ICP 11) 3 Restricted
Building-blocks of sound standards and practices Clear lines of responsibility and accountability Clear structures Strategic objectives and corporate values, including risk appetite Knowledge and independence of board members Quality and duties of senior management Sound risk management in line with strategy Internal control functions: internal audit, appointed actuary, compliance etc. Proper incentives, including compensation policy Disclosure of information and market discipline 4 Restricted
To make a long story short Make sure there is a proper and well functioning governance hierarchy (avoiding conflicts of interests) and that the board and the senior management assume their respective oversight roles Ascertain that there is a well-functioning risk management function and appropriate control mechanisms within the company so that all assume their roles in accordance with rules and regulations, and the strategy and objectives of the company Facilitate external control through disclosure in order to promote a good functioning of the market 5 Restricted
Exercise Read the description of the case Discuss and respond to the following questions: What governance, internal control and risk management concerns would you have had as the supervisor of Providence? What regulatory framework should you have had in place and what supervisory measures could you have taken to prevent or mitigate the problems that later occurred? Going further, how could you incentivise the insurance industry to adopt better governance frameworks and practices and what would be on your list of improvements to make? Present your results Summing up and further discussions 6 Restricted
