INSURANCE COMPLIANCEA MISSED OPPORTUNITY?
Adv. Suzette OlivierManaging Executive: Governance, Risk, Legal and Compliance16 August 2017 CISA
OPERATING ENVIRONMENT
OPERATING ENVIRONMENT
OPERATING ENVIRONMENT
OPERATING ENVIRONMENT
OPERATING ENVIRONMENTBloomberg's Misery Index, which combines countries' inflation and unemployment outlooks, ranks South Africa second only to Venezuela.
OPERATING ENVIRONMENT
OPERATING ENVIRONMENT
RECENT INDUSTRY REPORTS ON TOP RISKS
TOP 10 INSURANCE RISKS* Source Towers Watson
1. Cybersecurity/cybercrime (operational risk)
2. Pricing and product‐line profit (insurance risk)
3. IT / systems / technology gap (operational risk)
4. Competition (strategic risk)
5. Underwriting (insurance risk)
6. Legislative & regulatory (operational risk)
7. Investment market risk (investment risk)
8. Strategic direction / opportunities missed (strategic risk)
9. Natural catastrophe (insurance risk)
10.Emerging risks (unknown type of risk)
Damage to reputation/brand
Economic slowdown/slow recovery
Increasing competition
Regulatory/legislative changes
Cyber crime/hacking/viruses
Failure to innovate/meet customer needs
Failure to attract/retain top talent
Business interruption
Political risk
Third party liability
TOP 10 INSURANCE RISKS* Source Towers Watson
IMPACT ON COMPLIANCE FUNCTION
IMPACT ON COMPLIANCE FUNCTION
National Treasury April 2016 study on the impact study of Twin Peaks reform• Compliance cost 0.7% of income translating to 2.4% of operating expenses excludes indirect cost such as time spend management and directors, training,
changing processes and strategies
• Main drivers increased in skilled compliance staff technology costs of changing systems
• Challenges managing volume and pace of regulatory change scarcity of skilled staff
IMPACT ON COMPLIANCE FUNCTIONS
NT 2016 continued…Impact on compliance function expected to increase driven by
*Additional resources Systems changes and development Management and Board time Development of new risk and compliance management systems Additional licensing requirements and costs Possible duplication in requirements from multiple regulators Greater responsibility for due diligence, oversight and supervision
of product distribution channels and business partners, also withimplications for costs at business partners
An increase in levies to cover the costs of multiple regulators
IMPACT ON COMPLIANCE FUNCTION
Number of new regulatory instruments impacting on financial institutions in 2016:
*Source Law Explorer: 2016 Regulatory Statistic for financial institutions in SA
35 006 pages
INSURANCE LEGISLATIVE/REGULATORY INSTRUMENTS DEALING WITH THE
COMPLIANCE FUNCTION
LEGISLATIVE/REGULATORY INSTRUMENTS
Board notice 158 of 2014 issued in terms of LTIA/STIA
IMPACT
* Source: Survey of more than 12 000 professionals in North America by Robert Half and Happiness Works
REGULATORY FEEDBACK ON ITS TOP MARKET CONDUCT RISKS FOR INSURERS
REGULATORY AUTHORITY COMMUNICATION
• Market Conduct main findingsHighest risk – insurers with outsourced models(Hands-off approach to claims that are dealt by agents)
Data not being received from third parties – policydata, claims data, complaints dataAbsence of credible data resulting in:• Poor/inconsistent management information relating to
policyholder risks inherent in business operating model• Lack of root cause/trend analysis on claims and
complaints• Absence of substantive Treating Customers Fairly
embedment plans across distribution channels
REGULATORY AUTHORITY COMMUNICATION
• Market Conduct main findingsUnable to demonstrate adequate, ongoing oversight ofthird parties
Conduct risks not adequately incorporated as part ofbusiness wide assurance activities
• Insufficient capacity and level of skill of compliancefunction – largely FAIS focused, poor insight on strategicand operational impact of regulatory developments, lackof integration into wider enterprise risk managementframework
• Inadequate focus on conduct issues by internal audit –largely financial and process focused, lack ofunderstanding of conduct risk issues
WHAT ROLE DOES COMPLIANCE PLAY IN NAVIGATING BUSINESS TO ACHIEVE ITS
PURPOSE?
INSURANCE COMPLIANCE FUTURE
• Improve risk and businessperformance
• Avoid money, time and energy on“blind compliance” refocus onmaterial compliance businessimprovements
• Training
• Combined Assurance• Become closely connected• Strategic role (pro‐active)
INSURANCE COMPLIANCE – FUTURE
• Broadening mix of compliance talent• Assurance maps (integrated insurance)• Compliance is more than monitoring• Due diligence• Advisory role• Mitigation plans with clear timelines
Effective compliance requires explicit strategic considerationto ensure that we are effective, efficient, smart and addstrategic value !!!