Insurance Governance Leadership Network, November 2014
"A lot of the work since the crisis has focused on strengthening the resilience of our institutions and infrastructure. As this work nears completion, the spotlight is shifting. It is shifting towards market practices, industry culture, and individual behaviour."
—Martin Wheatley, Chief Executive, Financial Conduct Authority
In virtually every part of the world, the financial crisis sapped public trust in financial institutions. New regulations and regulators were created to more explicitly protect customer interests. Conduct supervisors increased the intensity of their scrutiny and began to impose previously unprecedented fines. Before the crisis, supervision typically focused on rules or principles; today, supervisors worry about consumer outcomes. This has proven to be a challenging aspiration for both supervisors and insurers. Good outcomes are often subjective. They can be influenced by factors outside of insurers’ control, and the quality of an outcome may take years to determine.
Nonetheless, the intensity of conduct regulation and the emphasis on outcomes continues to grow. The UK’s Financial Conduct Authority (FCA) and the Dutch Authority for Financial Markets (AFM) appear to be moving fastest among supervisors, but other countries are watching and their approaches are likely to be widely imitated.
To date, banks have faced the most public and supervisory scrutiny, but insurers have not been immune. Indeed, in the words of one director, “It would be foolish to think insurers will not face what banks have faced. Perhaps it will be to a lesser degree, but the wave is coming.”
On September 16, 2014 and October 9, 2014, insurance directors, executives, and regulators gathered to discuss this new era of supervision and to consider practical approaches for addressing conduct challenges. During these conversations, several key themes emerged. This ViewPoints centers on four of these themes:
Global insurance groups are increasingly prioritizing conduct and related risks
Conduct standards and expectations are not yet well defined
Boards are redefining their conduct responsibilities
Strong culture is the foundation of good conduct