The Reserve Bank and Risk Governance – the impact on insurance companies and intermediaries.
On 19th February, a presentation was given in Auckland by the Reserve Bank of New Zealand on progress with introducing prudent regulation of insurers.
The main thrust of the presentation was to acknowledge the work undertaken by insurers in complying with RBNZ standards as outlined in the Insurance (Prudential Supervision) Act 2010 – hereafter known as IPSA.
But also contained in the delivery was the announcement that a review of insurance companies would be conducted in relation to the standard of risk management and governance present in these entities.
The entire speech is here on the RBNZ website, but the key message is this...
The aim of the review is to assess whether insurers' boards are doing a sound job of managing risk and promoting a prudent approach to risk throughout the company.
There is no doubt whatsoever that insurance companies will be assessed and that the RBNZ will be seeking to raise standards.
It may seem that there is some pre-judging of current standards, but there is sufficient evidence at the RBNZ’s disposal to suggest that more needs to be done and that continual monitoring and improvement will be expected.
And the key phrase to note is “throughout the company”.
The extent to which Life insurance companies will be impacted remains to be seen, but for those which have set up QFE’s, the RBNZ risk governance scrutiny will extend to cover the risk management standards of these bodies.
Even those insurance companies without a QFE would be advised to look at the risk to their enterprise presented by maintaining third party distribution relationships.
For example, product providers which receive the bulk of their production from dealer groups will have to consider the concentration risk, and those providers who depend on non-aligned advisers would do well to consider the impact on their IPSA obligations, should advisers display poor risk management and governance standards.
Assessing risk management and governance standards is a specialist task and requires a range of skill-sets, experience, and expertise to carry out proper analysis.
In the more “regulation-mature” markets of the U.K. and Australia, the risk governance and assessment exercise is sub-contracted to external advisers with the ability – and technology – to deliver impartial analysis, results, and recommendations.
The stance of the RBNZ in this initiative is to be commended as statements of consultative support were made during the presentation, and in question-and-answer session, and we should be grateful that the regulator is not adopting the adversarial approach present in some overseas jurisdictions.
Nevertheless, the IPSA standards will be enforced and insurance companies - and advisers who support these companies - are advised to undertake a risk management and governance evaluation, before the RBNZ comes calling.