At the 30th Insurance Management Development Programme (IMDP), held at the Thai General Insurance Association, Office of Insurance Commission (OIC) Secretary-General Chuchat Pramoonpol delivered a special lecture, titled 'The Direction of Regulation and Promotion of the Thai Non-Life Insurance Business'.
During the lecture, he conveyed the direction of insurance regulation amidst a complex, interconnected and rapidly changing risk context, emphasising the need to elevate the role of regulators from monitoring the status and data of companies, to that of a risk-based and forward-looking approach that allows for early identification of risk signals and the implementation of appropriate measures before problems escalate.
Regulators cannot just look at the present
Mr Chuchat stated that as the insurance industry is facing increasingly interconnected and potentially structural risks, regulation cannot only consider the current status of an insurer at a specific point in time. Instead, it must comprehensively assess potential future risks and their impacts.
To address this, he noted that the OIC is enhancing its regulatory approach by utilising various interconnected tools, including risk-based capital, early warning systems, enterprise risk management and own risk and solvency assessment (ERM/ORSA), stress testing and group-wide supervision (GWS), to ensure that regulation reflects risks at the company, group and overall insurance system levels.
For instance, Mr Chuchat pointed out in the lecture that ERM/ORSA should not be viewed as a report to comply with regulatory requirements, but rather as a tool that companies use in actual business management, as it can link acceptable risk frameworks, business strategies and plans, to financial position and capital adequacy.
The report can also integrate risk into decision-making at all levels of the organisation, from the board and management to operational departments, in order to create a strong risk culture within the company, Mr Chuchat added.
To help insurers, the OIC is expanding the use of ERM/ORSA to become a key component of risk-based governance. This involves integrating data with risk heatmaps and other regulatory data to systematically identify, prioritise and reflect the true risk level of each insurance company.
Furthermore, the OIC is developing a composite risk rating approach, which will help determine appropriate regulatory measures and intensity tailored to the risk level and nature of each company, enabling more targeted use of regulatory resources.
Enabling forward-looking oversight
Meanwhile, to enable forward-looking oversight, as well as assess an insurer’s ability to cope with potential risks, the OIC will use stress testing to evaluate whether companies or systems can withstand the impact and fulfil obligations to policyholders if faced with a complex and severe situation.
This may be achieved through both system-level (top-down) and company-level (bottom-up) assessments via ERM/ORSA, with test factors adjusted to better align with the company’s business profile. The assessment evaluates both solvency and liquidity, as well as the appropriateness of management actions that the company will implement to address crisis situations, ensuring they are reasonable and practical.
Furthermore, the OIC is advancing development of GWS, another step in enhancing regulatory oversight, as many insurers in Thailand are part of business groups with interconnected structures in terms of shareholdings, investments, inter-company transactions, policy setting and risk management.
Noting that the financial status of individual insurance companies may not fully reflect the risks emanating from other companies or activities within the group, Mr Chuchat stated that this approach aims to provide a systematic view and management of interconnected risks at the group level.
GWS encompasses three pillars of supervision: quantitative supervision, qualitative supervision, and reporting and disclosure of inter-company transactions. This will allow for a comprehensive assessment of the stability and risks of the business group and reduce the likelihood of risks from one part of the group being passed on to the insurance company or escalating into systemic risk.
“When these mechanisms work together, both regulatory agencies and the business sector can view risks more quickly, deeply and comprehensively,” said Mr Chuchat.
“This direction aligns with the 5th National Insurance Development Plan, which aims for the insurance system to go beyond being a mechanism for compensating damages after an event, to become an integral part of the country’s risk management system and a ‘National Risk Buffer’, a buffer and safety net to absorb the impact of crises facing the nation.”
He said, “Building insurance companies with strong risk management systems capable of handling crises and reducing the likelihood of risk transmission between entities not only strengthens the stability of the insurance sector but also forms a crucial foundation for protecting public rights, building confidence in the insurance system and increasing the country’s capacity to manage risks in the long-term.”