On Tuesday 9 August 2016, ACFS, in conjunction with the Australian APEC Study Centre at RMIT University, hosted a boardroom briefing with Dr Jules Gribble, Principal Administrator at the International Association of Insurance Supervisors (IAIS). The briefing was attended by around 15 representatives of general insurance companies, regulators, fund managers, law firms, and the state government of Victoria. The briefing was chaired by Amy Auster, the (outgoing) Executive Director of ACFS, and Ken Waller, the Director of the Australian APEC Study Centre.
Dr Gribble opened by describing the IAIS’s role as a global insurance standard-setter. Its mission is to promote effective and globally consistent supervision of the insurance industry; develop and maintain fair, safe and stable insurance markets for the benefit of policyholders; and contribute to global financial stability. Dr Gribble noted the importance of a focus on policyholders, rather than shareholders or other stakeholders. Global financial stability is a recent addition to the mission statement. Staff at the IAIS have spent a lot of time thinking about global systemically important insurers (G-SIIs) and macro-prudential, as opposed to micro-prudential, regulation.
Dr Gribble noted that the IAIS has a broad and diverse membership, covering nearly 140 countries and 97% of the world’s insurance premiums. This distinguishes it from organisations like the Basel Committee on Banking Supervision (BCBS), which has only 28 members (one being the European Union). The inclusion of smaller, less developed nations in the membership of the IAIS means it has a very different perspective to the BCBS when it comes to global standard-setting. Dr Gribble noted that the IAIS has a small permanent secretariat and draws most of its resources from domestic supervisors and from secondments.
The IAIS’s role is to set global standards, assist members (i.e. domestic supervisory agencies) to implement those standards, and assess implementation. Assessment may take the form of self-evaluation by supervisory agencies, or it may be conducted in conjunction with the IMF/World Bank Financial Sector Assessment Program (FSAP). The IAIS endeavors to maintain ‘proportionality’ in tailoring its standards to larger or smaller members. Dr Gribble stressed that there is no point having standards if supervisory staff cannot understand them. To this end, the IAIS forges alliances with organisations – such as the Access to Insurance Initiative (A2ii) and the World Bank – that engage in capacity building in developing countries. The IAIS also helps to support cooperation between supervisors through multilateral MOUs and ‘supervisory colleges’ (groups of supervisors that oversee multinational insurance companies), and represents the insurance industry in meetings with other standard-setting bodies.
The IAIS’s standard-setting approach has three layers. The first is the Insurance Core Principles – a set of 26 principles, each with accompanying standards and guidance material – that apply to the supervision of all legal insurance entities. The second layer is ComFrame (Common Framework for the Supervision of Internationally Active Insurance Groups). ComFrame provides a basis for supervising a set of about 75 large insurance groups. The third layer is the G-SII package, which comprises additional supervisory material for a small number of insurance groups designated by the Financial Stability Board (FSB) as being globally systemically important. The criteria for G-SII designation are listed in an IAIS document, but in practice the line between systemic and non-systemic is a highly contentious one. One attendee questioned the designation of Ping An Insurance as a G-SII, despite it largely operating in the domestic Chinese market. Dr Gribble noted that domestic supervisors have the right to add companies to the G-SII list or to debate their removal from the list. The IAIS has only just begun looking at domestic systemically important insurers (D SIIs).
One attendee asked about Takaful (a type of Islamic insurance). Dr Gribble noted that, in practice, the IAIS standards apply to all types of insurance. He also noted that interpreting the Insurance Core Principles in a domestic context can be difficult, given the wide variations in language and cultural background of member representatives. The same sets of words can have different connotations for different members. It can also be difficult to reach a compromise between members when developing new standards, as supervisors have a natural inclination to think that their domestic systems of regulation are already sound. This situation is fundamentally similar to what has occurred in banking regulation – American and European banking regulators have found it difficult to achieve compromise on Basel III/IV matters.
One attendee asked about the IAIS’s involvement in the supervision of product design. Dr Gribble noted that the IAIS aims to ensure supervisors understand products well enough to safeguard against policyholders being rorted – i.e. this area falls under the IAIS’s mission of maintaining fair markets for the benefit of policyholders.
A number of attendees asked about the implications of ‘fintech’ (financial technology). For instance, in Papua New Guinea and some African nations, m-insurance products are distributed through mobile phones, and insurance supervisors have no control over telecommunications companies. In Zimbabwe, the recent suspension of service by one telecommunications company led to a large number of policyholders losing their coverage. There are several possible options for responding to the challenge posed by m-insurance. One option is building linkages (e.g. through an MOU) between insurance supervisors and telecommunications supervisors. A second is expanding the regulatory umbrella to also cover certain telecommunications providers (i.e. requiring a telecommunications company to hold a financial services license). The IAIS is studying fintech from the perspective of supporting supervisors to protect policyholders.
Attendees talked about the issues that are of most concern to the Australian and global insurance industries. Some suggested that the low interest rate environment and cyber risk are of particular concern. Other attendees discussed disaster insurance, and the work that is being done through the Asia-Pacific Financial Forum (APFF) for Asia-Pacific nations that have been badly affected by natural disasters. The ACFS Insurance Research Program Committee has recently commissioned research on data availability, and the challenges that Australian insurers face in accessing data on disaster risk and mental illness. One attendee noted that data gaps mean there is a disconnect between what the community expects of insurers and what insurers are actually capable of doing.
Dr Gribble noted that in the short term, the IAIS is primarily focused on bedding down capital standards and G-SII designations. While prudential issues take up most of the staff’s time, the IAIS also covers other important aspects of insurance regulation, such as market conduct.
Image: Participants at the boardroom briefing. Clockwise from left: Annabelle Butler, Amy Auster, Ken Waller, Cathy Binnington, Jules Gribble, Rion van Zyl Smit.