Insurance industry still falling short on embedding risk management

A recent Moore Stephens’ survey has revealed that there is still some way to go in terms of embedding risk management into the UK insurance industry, given the FSA's continued focus on the whole area of risk management in regulated firms.

The survey was designed to assess how insurance entities are managing risk today and how risk management attitudes and practice in the industry have moved since the first Moore Stephens’ survey on this subject in March 2007.

Given the emphasis placed by the FSA on senior management responsibilities, we expected a significant increase in risk management maturity, but this was not the case. Despite some improvement, our survey reveals that while risk management frameworks and responsibilities have been set and people and resources allocated in the majority of insurance businesses, risk management continues to be low on board and senior management agendas.

The responses on business benefits are similar to our 2007 survey. Scores of 3.8 out of 5.0 on increased regulatory compliance and improved internal control from insurer respondents are encouraging, despite the seeming continued lack of commitment to risk management from some businesses demonstrated in the responses to other questions.

Finally, the level of preparedness for Solvency II is relatively low, but not unexpected. Affected firms will need to take positive steps sooner rather than later to demonstrate compliance to the satisfaction of the regulators. And the biggest challenge they face is likely to revolve around the development of compliant internal capital models, or the customisation of existing models and - most importantly - the embedding of those models into day-to-day business practices, as part of sound risk management.

Read our full survey report at http://www.moorestephens.co.uk/insurance.

Solvency II

78% of respondents to our recent insurance industry risk management survey said that effective data management was the most challenging aspect in implementing Solvency II for their business, with understanding requirements ranked in second place at 70% and integrating capital modelling and gap analysis sitting in equal third place with 52%.

The key to successful implementation of Solvency II is to develop a compliant internal capital model and embed it into the day-to-day business activities of your firm, using it to make strategic and financial decisions in the best interests of the company and its stakeholders.

Moore Stephens is uniquely placed to provide an expert one-stop solution to Solvency II compliance. We have proven insurance industry knowledge and experience, the actuarial skills, and the technical expertise to build or adapt internal models to the required level and provide third party validation of existing systems.

We build compliant internal capital models that can be embedded into the very fabric of an organisation. They drill into specific areas of a business, rather than merely identify the whole-account picture. In this way, they establish the correct capital loading factor needed for a particular class of business to be profitable. They also deliver the high level of granularity essential to the success of such an undertaking. The information generated is capable of being fed back into underwriting, reinsurance, claims and other functions to extract maximum benefit and efficiency.

And if you already have a capital model, we can provide an independent evaluation of its effectiveness, and ensure that it meets regulatory requirements.

Please contact This e-mail address is being protected from spam bots, you need JavaScript enabled to view it   for further information.

Insurance broker fined for failing to control its Appointed Representative

The FSA has fined Richard Holmes, a director of insurance broker AIF Limited, £20,020 for control failings in relation to an appointed representative firm (AR).

The AR was appointed by Holmes in September 2006 without any necessary checks being completed. Holmes based the approval for the appointment solely on assurances from two business contacts.

In February 2007, an underwriter advised Holmes that the AR had premiums outstanding and rather than checking further, he relied on assurances from the AR that the premiums had been brought up to date. Holmes failed to increase his monitoring in any way, nor did he investigate the way the AR was carrying out its business.

Holmes terminated the AR’s status in September 2007 following a customer complaint, but subsequently became aware the clients’ premiums had not been passed on to underwriters, leaving them uninsured.

The FSA is satisfied that Holmes then ensured that AIF took steps to arrange alternative insurance for those clients and also ensured that cover was maintained where AIF had already provided instructions to the insurer. The cost to AIF of ensuring clients remained on cover was approximately £27,000.
Jonathan Phelan, head of retail enforcement, said, "Senior management at firms are responsible for the standards and conduct of the businesses they run - this applies to all firms both large and small. In particular, senior managers should ensure that their appointed representatives are appropriately overseen".

The FSA took into account that Holmes did not deliberately set out to contravene its requirements; co-operated with the FSA and took remedial action to ensure clients were not left uninsured. Holmes agreed to settle at an early stage of the FSA’s inquires and therefore qualified for a 30% discount under the FSA’s executive settlement procedures. Without the discount the fine would have been £28,600.

If you have appointed representatives and wish to review the controls you have in place over them please contact This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .

New head of insurcance sector at FSA

The Financial Services Authority (FSA) has appointed Ken Hogg, currently interim Chief Financial Officer at MGM Assurance, as Insurance Sector director. He will start at the FSA on Monday 6 July and will report to Jon Pain, FSA managing director retail markets.

Before joining MGM Assurance, Ken Hogg was Chief Operating Officer at AIG Life and he also spent 20 years at AEGON.