THE INSURANCE INDUSTRY Corporate Governance: Issues and Challenges

An Industry Offering Services to Stakeholders Protection against financial loss: offering some reimbursement for losses actually incurred. Minimizing risk: enabling the insured to pursue business and other activities with relative confidence. Ensuring reliable support: for survivors who would otherwise be unable to continue a positive existence.

Corporate Governance The process by which enterprises are made responsive to the rights and wishes of stakeholders. Demb & Neubauer, 1992 The relationship among various participants in determining the direction and performance of enterprises. Monks & Minow, 1995

Parties to Corporate Governance Board of directors Management Shareholders Employees Customers Suppliers Regulators etc. All parties have an interest in the firm’s performance. They make inputs, but also have needs and expectations that corporate governance should try to meet.

Stakeholders’ expectations Customers: Services as promised. Employees: Job satisfaction Investors: Good returns. Business Associates: Stable relationships. Community: Social responsibility. Government: Fulfilment of statutory obligations. ALMIGHTY GOD: the use of all resources according to His will. All stakeholders have the right to demand FULL ACCOUNTABILITY.

RESPONSIBILITIES OF THE FIRM Fulfilling the long-term goals of the enterprise Considering & caring for employees’ interests Maintaining excellent relations with business associates Maintaining proper compliance with statutory requirements Taking account of the needs of the environment

CORPORATE GOVERNANCE: The core issues The firm offers fair returns for each stakeholder’s input; The firm displays high business standards; Different interests are equitably managed; Executives handle fiduciary responsibilities conscientiously; The firm practises good ethics and accountability.

The Functions of the Board Reviewing & approving corporate strategy Approving budgets & reviewing performance Ensuring cost-effective management of corporate resources (especially the human resource) Managing top appointments & succession Ensuring compliance with statutes Reporting to stakeholders Reviewing board performance

THE BOARD AND MANAGEMENT: Corporate Success – a shared focus An identity of objectives and interests Mutual accountability Joint focus on the interests of stakeholders Commitment Collaboration, not competition Team spirit, mutual confidence & respect, clarity of respective roles Free and constructive sharing of information

A STRATEGY CHECKLIST for Board and Management What business(es) are we in? Are we (still) in the right business? Are our corporate objectives reasonable, appropriate and clearly defined? Are we in the right position in the market? Are we utilizing and managing resources and assets efficiently? …..

STRATEGY CHECKLIST (continued) Are our human resource policies effective for finding & retaining good people? What is our track record in community and environmental responsibility? What is our business ethics record? What are the threats to our business?

DIVISION OF ROLES: Sensitive Issues for the Board “Direction” of the business; Appointments to Board positions; Terms & conditions for executives; Managing the performance of senior executives; Determining executive compensation; Ensuring effective executive succession.

THE VALUE-ADDING BOARD An external perspective A dimension of competent objectivity Supportive criticism of management Informed appraisal of the business A friendly ear in times of difficulty The custodian of accountability The moderator of conflicts of interest

The Enterprise of Tomorrow Who will be our customers/stakeholders? What needs/expectations will they have? How will goods/ services be delivered? What new delivery competencies must we have? How will the competencies be acquired? Competition, globalisation – what are the terms? What actions must we take – now – to be ready?

Establishing business integrity Determine and articulate the values cherished by the enterprise. Establish clear ground rules – code of practice indicating standards and procedures. Specify the consequences of off-standard conduct. Communicate clearly to all concerned. Audit the observance of discipline frequently. Apply agreed rewards and sanctions impartially and consistently.