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 !!!