The International Association of Insurance Supervisors (IAIS) last week launched a public consultation on the development of its holistic framework for the assessment and mitigation of systemic risk in the insurance sector, a key component of the post-financial crisis reform agenda.
The association has published a draft “Holistic Framework for Systemic Risk in the Insurance Sector” document, with feedback on it to be received by25 January 2019.
With this, the IAIS proposes to evolve its current approach to systemic risk by:
- Recognising that systemic risk may arise from both the collective activities and exposures of insurers at a sector-wide level as well as from the distress or disorderly failure of individual insurers;
- Addressing cross-sectoral aspects of systemic risk, by comparing the potential systemic risk stemming from the insurance sector with other parts of the financial system; and
- Moving away from a binary approach in which certain additional policy measures are only applied to a relatively small group of insurers (the identified G-SIIs), to an approach with a proportionate application of an enhanced set of policy measures targeted at the exposures and activities that can lead to systemic risks from the insurance sector as a whole.
The holistic framework includes the following key elements:
- An enhanced set of supervisory policy measures for macroprudential purposes providing the preemptive part of the framework;
- A global monitoring exercise by the IAIS designed to detect the possible build-up of systemic risk in the global insurance sector at an individual insurer level and at sector-wide level;
- Where a potential systemic risk is detected, supervisory powers of intervention that enable a prompt and appropriate response;
- Mechanisms that help ensure the global consistent application of the framework, by having a collective assessment of potential global systemic risk and a coordinated supervisory response when needed; and
- An assessment by the IAIS of the consistent implementation of enhanced on-going supervisory policy measures and powers of intervention.
The holistic framework is slated for adoption in late 2019, with implementation beginning in 2020. The IAIS will further refine the proposed framework, taking account of the public consultation feedback.
At the same time last week, the IAIS concluded its 25th Annual Conference preceded by the Annual General Meeting of Members and three days of committee meetings.
Mr Jonathan Dixon, IAIS secretary general, said, “We are now beginning a pivot to a greater focus on emerging and accelerating trends impacting both our developed and emerging market members, including FinTech, cyber risks, climate risk and sustainable development challenges. As we move towards completion of our current commitments to the finalisation of post-crisis reforms, such as a Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame), including a global Insurance Capital Standard (ICS), our focus will also necessarily shift to the implementation of these agreed standards”.
In keeping with the conference theme – “Reimagining insurance” – panellists explored the role of supervisors in supporting sustainable economic development, responding to technology developments related to Big Data and artificial intelligence, closing the protection gap that is becoming more challenging due to climate risk, and making the necessary linkages between prudential and conduct of business supervision.
The IAIS Executive Committee also approved important supervisory papers on the increasing digitalisation in insurance and its potential impact on consumer outcomes, supervision of insurer cybersecurity, and the composition and role of the Board.
At the Annual General Meeting, IAIS members approved important governance changes, which will see the Executive Committee increased from 24 to 32 voting members, to include supervisors from both major global insurance markets and a diversity of regional representation from both developed and emerging jurisdictions.
The IAIS is a voluntary membership organisation of insurance supervisors and regulators from more than 210 jurisdictions with a mission to promote effective and globally consistent supervision of the insurance industry to develop and maintain fair, safe and stable insurance markets.