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9/2 W01/March 2017 Award in General Insurance

Introduction

In this chapter, we examine the role that a regulator plays in the insurance industry, the functions of the
International Association of Insurance Supervisors (IAIS), as well as the importance of an insurer’s
capital adequacy and its relation to solvency control levels.
We also outline the growing importance of combating financial crime, and the role of the Financial Action
Task Force (FATF) in the development and promotion of national and international policies to combat
money laundering and terrorist financing.
Lastly, we consider the issue of fraud and how insurers manage it.

Key terms
This chapter introduces the following terms and concepts:

Capital adequacy Customer due diligence Financial Action Task Force Fraud prevention
(FATF)
International Association of Money laundering Regulatory approaches Role of the regulator
Insurance Supervisors
(IAIS)

Solvency Types of fraud

A Role of the insurance regulator

The main purpose for regulating insurance is to protect the consumer, maintain confidence in the
Regulation of
insurance is to protect financial system and promote the understanding of it.
the consumer
The insurance regulator typically performs five distinct oversight functions to achieve its objectives,
namely regulation, authorisation, supervision, surveillance and enforcement. This is backed up by sound
corporate governance, effective market discipline, a high level of consumer education and a basic safety Reference copy for CII Face to Face Training
net for consumer compensation.
Regulation
The regulator determines the scope of activities that should be regulated, and sets the rules and
standards governing the behaviour of insurance markets and institutions. Prudential regulation focuses
on the safety and soundness of insurance companies, seeking to safeguard the value of the assets that
underpin their ability to of these institutions to fulfil financial contracts such as insurance policies.
Market conduct regulation focuses on how financial firms and their representatives carry out business
with consumers and seeks to promote fair dealing.
Authorisation
The regulator assesses any company that wishes to offer insurance services to ensure that they satisfy
the necessary authorisation or licensing criteria. These include having the relevant track record,
adequate financial resources and sound operational processes to ensure fair conduct of business. The
regulator also assesses whether insurance companies and their representatives meet the fit and proper
criteria to conduct regulated activities. This is an ongoing process (see Supervision below).
Supervision
The regulator is responsible for the supervision of insurance companies and part of this is identifying
9 potential risks that may impact the safety and soundness of the company. It relies on a variety of
Chapter supervisory tools to carry out this work including on-site inspections as well as continuous off-site
supervision such as holding regular meetings, reviewing audit reports and regulatory returns, and
monitoring key indicators and business developments.
The regulator also supervises the conduct of business of companies and their representatives, to ensure
that they adhere to sound market conduct practices, including giving adequate product information and
providing customers with appropriate advice that suits their needs and risk profile.