SEMINAR NAIC/ASSAL/SVS REGULATION & SUPERVISION OF MARKET CONDUCT © 2014 National Association of Insurance Commissioners Overview and Purpose of Market Regulation ICPs

OUTLINE  Insurance Core Principles & Consumer protection  ICP 19  Supervision of conduct of business  ICP 9  Work in progress:  Supervisory approaches to conduct of business  IAIS SAPR on conduct of business 2

INSURANCE CORE PRINCIPLES Preconditions to supervising fair treatment of customers in several ICPs, including:  ICP 7 Corporate Governance: “The supervisor requires insurers to establish and implement a corporate governance framework which provides for sound and prudent management and oversight of the insurer’s business and adequately recognises and protects the interests of policyholders.”  Standard 7.9: “The Board shall ensure that Senior Management…promotes a culture of sound risk management, compliance and fair treatment of customers.” 3

ICP 19 CONDUCT OF BUSINESS “The supervisor sets requirements for the conduct of insurance to ensure that customers are treated fairly, both before a contract is entered into and through to the point at which all obligations under a contract have been satisfied.” 4

ICP 19 CONDUCT OF BUSINESS  Applies to insurers, and for the most part also to intermediaries  Requirements are outcome-focused and includes:  Fair treatment of customers  Pre-sale processes  Policy servicing  Claims handling  Complaints handling 5

ICP 19 CONDUCT OF BUSINESS Benefits of good conduct requirements:  Trust and confidence in insurance sector  Reduction in risk of insurers following business models that pose a risk  A level playing field regarding acceptable business practices Context - there are differences in:  Traditions, culture, legal regime, development of market  Customers and products 6

FAIR TREATMENT OF CUSTOMERS  19.1 Insurers and intermediaries should act with due skill, care and diligence  19.2 Insurers and intermediaries should embed policies & procedures on fair treatment in their business culture  Fair treatment can be achieved through a variety of approaches  Fair treatment should be embedded in the culture 7

FAIR TREATMENT OF CUSTOMERS Some factors to consider:  Board and senior management responsibility  Strategy  Decision making  Internal controls (including reports and indicators on fair treatment)  Performance management  Remuneration  Policies and procedures  Supervisory guidelines 8

PRE-SALE PROCESSES  19.3 Insurers should take into account the interests of different types of customer in developing and marketing products  Product approval or principles-based approach?  19.4 Insurers and intermediaries to promote products/services in a manner that is clear, fair and not misleading  Information should be easily understood, not hide important statements 9

PRE-SALE PROCESSES Disclosure:  19.5 Supervisor sets requirements on timing, delivery and content of information  Customers need appropriate information before and at point of sale  Information should be easily understood – focus on quality, not quantity  Level of information required will vary, but should include key product features  Customers’ rights and obligations  Policyholder protections schemes (if applicable) 10

PRE-SALE PROCESSES Advice:  19.6 Where advice is given, this should be appropriate taking into account the customer’s disclosed circumstances  Need for advice may depend on type of product  Basis of recommendations should be explained  Insurers responsible for their agents  Training programs will help staff maintain knowledge 11

PRE-SALE PROCESSES Conflicts:  19.7 Where advice is given, any potential conflicts of interest should be properly managed  Conflicts arise where competing personal & professional interest exist  Intermediaries more likely to encounter conflicts  Policies and procedures to manage  Disclosure  Decline to act if conflict cannot be managed 12

POLICY SERVICING  19.8 Insurers should  Service policies until all obligations have been satisfied  Disclose to customer any contractual changes  Disclose further relevant information, depending on type of product  Relevant information could relate to:  The insurer  Terms and conditions  Ongoing information, where relevant (e.g. long- term, investment-related insurance) 13

CLAIMS  19.9 Insurers should have policies and process to handle claims in a timely and fair manner  Policies and procedures  Disclosure on how to claim, timeframes  Information on claim status  Claims disputes - staff should be appropriately qualified, policies should promote independence and objectivity 14

COMPLAINTS  Insurers and intermediaries should have policies and processes in place to handle complaints in a timely and fair manner  Complaints a key indicator of conduct  Policies and procedures  Independent resolution mechanisms where complaints are not resolved by the insurer/intermediary 15

PRIVACY PROTECTION  Legislation identifies provisions under which personal information is collected and communicated to third parties  Confidential information should be legally protected  Customers should be informed on what information might be disclosed and to whom 16

PRIVACY PROTECTION  Insurers and intermediaries should have policies and procedures for the protection of private information  Board and senior management ultimate responsibility should be part of culture and strategy  Policies and procedures  Training of employees  Appropriate IT & controls  Outsourcing risks  Assess risks of breaches 17

DISCLOSURE BY SUPERVISOR  The supervisor discloses information that supports the fair treatment of customers  Policyholder protection arrangements  How local legislation applies to cross-border sales  Warning notices  Information that promotes consumers’ understanding of insurance contracts 18

OUTLINE  Insurance Core Principles & Consumer protection  ICP 19  Supervision of conduct of business  ICP 9  Work in progress:  Supervisory approaches to conduct of business  IAIS SAPR on conduct of business 19

ICP 9 SUPERVISORY REVIEW & REPORTING “The supervisor takes a risk-based approach to supervision that uses both off-site monitoring and on-site inspections to examine the business of each insurer, evaluate its condition, risk profile and conduct, the quality and effectiveness of its corporate governance and its compliance with relevant legislation and supervisory requirements. The supervisor obtains the necessary information to conduct effective supervision of insurers and evaluate the insurance market.” 20

ICP 9 SUPERVISORY REVIEW & REPORTING  Results of previous conduct assessments feed into the supervisory plan  Off-site monitoring - conduct of business risks one of the relevant risks to be analysed  On-site inspection - full scale inspection would include assessment of fair treatment, including observance of COB requirements and consumer regulation  Where prudential and conduct supervision carried out separately need cooperation - both should have a full understanding of the risks 21

ICP 9 SUPERVISORY REVIEW & REPORTING Guidance includes some examples of how of fair treatment can be assessed in the supervisory process:  Assess the culture in relation to customer treatment  Check adequacy, appropriateness, timeliness of information given to customers  Review claims handling  Review frequency/nature of complaints, disputes, litigation  Review any customer satisfaction measures 22

SUPERVISORY APPROACHES TO CONDUCT OF BUSINESS Application Paper on approaches to supervision of conduct of business  Under development - due for adoption in October 2014  Currently out for consultation - comments due 8 August The paper will:  Look at approaches and tools that achieve supervisory objectives that support  ICP 19  ICP 9 (regarding conduct supervision) 23

IAIS SAPR ON CONDUCT OF BUSINESS IAIS Self-Assessment and Peer Reviews  Purpose - to contribute to enhanced observance of IAIS Insurance Core Principles and Standards through:  Developing assessment mechanisms and questionnaires on a thematic basis  Reporting the outcome of the reviews - help participating members identify potential areas of improvement; and help improve standards or identify gaps  Questionnaire to launch during the summer of

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