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Chapter 9 Insurance regulation 9/3

Surveillance
The regulator undertakes various kinds of financial surveillance. From a prudential perspective, they
seek to identify non-sustainable trends and potential vulnerabilities in the financial system, as well as
transmission linkages within the system that could impair the safety and soundness of insurance
companies. From a market conduct perspective, the regulator monitors the efficiency and fairness of
market operations, seeks to identify market misconduct, and assesses companies’ compliance with
market conduct rules.
Enforcement
The regulator can take action against companies and individuals who breach prudential and market
conduct requirements. Where there is a regulatory breach, the regulator may impose administrative
sanctions or refer the matter to criminal authorities. The regulator also investigates and initiates civil
penalty actions against those who engage in market misconduct.
Corporate governance
The regulator seeks to promote effective and sound corporate governance practices by insurance
companies. It is responsible for overseeing and managing the risks arising from a company’s activities,
as well as ensuring compliance with regulatory standards and requirements. The regulator may also work
with other agencies in promoting sound corporate governance practice.
Market discipline
The regulator promotes timely, adequate and accurate disclosure by insurance companies to allow
consumers and investors to make informed decisions about the products they buy or invest in. In
addition, the regulator seeks to foster effective market discipline by facilitating the establishment of
dispute resolution schemes.
Consumer education
The liberalisation of financial markets and shift towards a disclosure-based regime around the world
means that consumers are now faced with a growing choice of financial products and services.
Consumers need to understand the implications of the different contracts they enter into when buying or
investing in insurance products and services. The regulator may also acts as a catalyst for consumer
education by working closely with industry associations, consumer groups and other public sector
organisations to identify the main areas of focus for consumer education efforts and to encourage Reference copy for CII Face to Face Training
greater collaboration between the private and public sectors.
Consumer compensation
The regulator facilitates various consumer compensation schemes, such as a ‘policy owners’ protection
fund’. The establishment of such compensation schemes is important given that the regulator cannot
prevent all failures.
Question 9.1

What are the oversight functions of the regulator? Briefly explain them.

A1 Types of regulatory approaches

A1A Prescriptive-based regulation

Prescriptive-based rules or standards specify the technical means for achieving regulatory goals by
setting out the criteria that have to be satisfied. Prescriptive standards focus on prevention by
controlling the processes or input that give rise to risk situations. These may be appropriate where there Chapter
are stable risks requiring a high level of certainty.

Prescriptive standards may also be appropriate where the level of harm from any non-compliance is 9
unacceptable and a level of certainty is desirable.

A1B Principles-based regulation
Principles-based regulation places greater reliance on principles and outcomes as a means to drive the
regulatory aims; there is less reliance on prescriptive rules and supervisory actions, instead giving
companies the responsibility to decide how best to align their business objectives and processes with
regulatory outcomes.