1273637, Sanjay Verma , F2 , Q 30 , Comment on Governance and regulatory issues in Insurance sector.

.Introduction

During the financial crisis, the insurance industry continued to operate as usual and insurance regulations were reasonably adequate. With very few exceptions, insurers did not need government support. Nevertheless, substantial changes to the regulatory environment are being considered worldwide, which could create distortions in the market that ultimately harm policyholders as well as the economy. Governance has become an increasingly-critical issue after the corporate scandals which occurred all over the world and its specific role in the stability of financial intermediaries was highlighted by the severe crisis which hit the financial markets . In fact, for financial intermediaries the governance system is all the more important not only because intermediaries are basically in the business of risk acceptance but also due to their special role within the economy in the aggregation and transfer of financial resources.

Discussion

Insurance companies are routinely subject to market conduct and financial examinations, which are thorough, require companies to dedicate staff and interrupt their business operations, and can be costly for companies that have multiple domestic regulators. Moreover, exam reports are public information, and therefore can subject companies to public scrutiny, large fines, and reputation risk.

Top Insurance Industry Issues in 2014 describes in detail the challenges insurers are facing and how they can more effectively manage their operations, manage risk, and grow.:For those insurance companies owning depository institutions, bank holding company requirements such as required capital levels and frequency of examinations are additional concerns. Recently announced sales or planned divestitures of banking subsidies by big-name carriers suggest trepidation among many in the industry about these new requirements. Insurers will also need to prepare for new capital requirements, including any changes to risk-based capital levels and the introduction of new methods for determining regulatory capital such as those calculated using economic capital and ORSA. Carriers should begin looking at the NARC MI Task Force and Group Solvency Issues Working Group’s recently adopted ORSA Guidance Manual to begin to evaluate how they will align with the procedures contained in the manual. Though there isn’t yet a legal requirement for ORSA, the manual provides insurance companies with guidance as to how to perform the assessment under ORSA. Turning to health insurance, who can ignore the ongoing debates and legislation associated with healthcare reform in the United States? With everything from whom should be covered by insurance companies to how much in annual profit a carrier may make, healthcare reform poses myriad regulatory considerations for health insurers.

The insurance industry continues to evolve in response to globalization and technological development. Intensifying public scrutiny and regulatory attention have accompanied these trends. Accordingly, insurers are reacting to the increasing focus on corporate governance and corporate ethics. The move to in Europe, Australia and parts of Asia is one outcome of the mounting pressure for greater transparency in corporate reporting.

Conclusion

Regulatory and government requirements for the insurance industry have increased significantly, and this trend is expected to continue in the coming years. Until the economic downturn, the different functions within an insurance company had maintained different technology budgets and systems within their silos. Today, government and regulatory issues is being discussed in the organization with the heads of audit, operational risk management, credit risk management, Geo-political risk management, compliance and legal all in the same room.