Tag Archives: insurance

Insurance Supervisors concerned about FinTech

Bank Reg

The International Association of Insurance Supervisors (IAIS) represents insurance supervisors and regulators from more than 200 jurisdictions in nearly than 140 countries.

Its Secretary General, Yoshihiro Kawai, outlined IAIS’s position with regards to FinTech in its recent newsletter.

For Kawai, FinTech presents both a significant opportunity and a threat.

It is giving rise to new business models, applications, processes and products. These could have a material effect on financial markets and institutions and the provision of financial services”.

IAIS focus has been on financial inclusion. It acknowledges that FinTech, in particular mobile or online based sales, has already contributed to a significant increase in insurance sales in some emerging markets.

New technology enables insurers, intermediaries and other financial service providers to customise products and marketing material”.

“However, more opportunities and fewer barriers do not automatically mean better market or customer outcomes and can also give rise to conduct of business risk”.

IAIS believes there are risks when products are sold online or using digital platforms without appropriate advice:

  • Unauthorised insurers could sell insurance to a wide range of customers across borders
  • The growing importance of data leads to risks to privacy protection and data security
  • Sophisticated cyber-attacks may lead to customer data being stolen, manipulated or destroyed

IAIS also recognises that FinTech developments pose substantial supervisory and regulatory challenges.

Kawai acknowledges that both insurance regulation and insurance supervisors need to adapt, foresee potential risks and act in a timely and appropriate manner to pre-empt emerging risks of FinTech.

Kawai concludes that IAIS Members should be well informed and prepared. He rightly points to conduct of business risks. Boards and senior executives of insurance firms need to ensure their products and services are based on real customer needs. Ensuring good customer outcomes is key.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions, position, or policy of Berkeley Research Group, LLC or its other employees and affiliates.

 

“Conduct Risk Appetite”: A misnomer, exposing firms to significant sanctions!

uncertainty-aheadBRG held a webinar on Seven Practical Steps towards Mastering Conduct Risk on 8 December in conjunction with the British Bankers Association.

A key message from the webinar was that the often-bandied phrase “conduct risk appetite” is a misnomer (i.e., a firm can’t set a tolerance for customer detriment or market failure; by inference, both must be zero).

That’s not to say things won’t go wrong; they will, but that’s different. When things go wrong, the board must move swiftly to rectify the situation. This is where values, culture and tone at the top matter most.

Other key messages for managing conduct risk included:

  1. Press on with practical compliance: boards and senior executives need a hands-on approach including clear responsibilities and apportionment; they must also ensure their people are competent.
  2. Understand your customer’s view: find out (independently) what your customers accept and expect, both now and in the future—it’s ok to use “big data”, but you must observe real customers too!
  3. Appreciate the regulator’s view: read what the regulators are reading—for example, behavioural risk (especially on biases and rule-gaming), Financial Service Ombudsman and Data Commissioner findings, consumer attitudes research—and importantly, understand the growing impact of regulatory convergence (e.g., Consumer Finance Protection Bureau and Australian Securities and Investment Commission conduct-related fines and sanctions).
  4. Start product design to the benefit of your customers: involve risk and compliance managers early on; consider the entire lifecycle of a product/relationship, not just point-of-sale.
  5. Hire, train, and keep high-quality people: intuition is good—listen to your employees.
  6. Set incentives for doing right by customers: profit should take care of itself!
  7. Take a forward-looking view: Assess new risk and consider new measurement tools; improve horizon scanning, including causal analyses of conduct prosecutions; use a behavioural lens to read through to different aspects of your business.

If you are interested in a copy of the slides, email tmoroney@thinkbrg.com.

Also see our white paper The Behavioural Regulators’ Agenda.