Figuring out the future and the now

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A piece of the failure puzzle – decreasing insurer failure rates through Skilled Person Reviews

Every failure hits policyholders’ savings or cover, impact their lives and their livelihoods. They destroys shareholder value and decrease confidence in the entire financial sector.

Suggestion – Introduce the equivalent of the UK’s Skilled Person Review

We must find ways to intervene with struggling insurers well before it’s time for a statutory manager or curator. Curators and statutory managers are expensive, invasive, and disruptive – and because of this, implemented as a last resort, meaning the prognosis is usually poor.

The UK’s FCA and PRA have the power to ask for a “Skilled Person Review” often termed a Section 166 review after the section of the Financial Services and Markets Act it falls under.

A skilled person review can entail a variety of roles, including assessing a firm’s governance, risk management, systems, controls, and compliance with regulatory requirements. The skilled person may also recommend remedial actions and provide oversight during their implementation.

These reviews might be triggered by a low or declining solvency level, a question around governance, risk and compliance practices, concerns over product designs and the treatment of customers, or questions related to regulatory compliance in any area.

Early intervention through a skilled person review can help identify and address potential issues in a struggling insurer. This proactive approach can prevent larger problems from arising and potentially avoid the need for more invasive and expensive measures such as placing the insurer into curatorship.

A Skilled Person Review will involve an independent third party with the appropriate skills to perform the review. The review itself could take several weeks or months, with the scope defined by the specific need.

However, insurers might request similar reviews for their internal purposes if the management team or Board have concerns in a particular area.

Benefits for the insurer include:

  • Identifying and addressing weaknesses in risk management, governance, and controls.
  • Reducing the likelihood of regulatory action due to non-compliance.
  • Improving the insurer’s reputation and relationship with regulators.
  • Gaining independent insights and recommendations for business improvements.

In South Africa, our regulator doesn’t have the same specific tool in current legislation. There is arguably enough general “investigations” scope in the Financial Sector Regulation Act or the Insurance Act to implement this. The clarity provided by the Section 166 review scope and format, and history of application in the UK provides regulatory certainty for everyone. It also means this regulatory action is less likely to be opposed by insurers.

Earlier investigations that get to the bottom of issues quickly, or allay concerns, may have a role in improving outcomes for policyholders and shareholders alike

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