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EIET ConferenceCompliance and Ethics in Insurance13 October, Kristin Bekkeseth, Partner, EY Financial Services
Kristin Bekkeseth
► Partner in EY EMEIA Financial Services.
► Member of the Nordic leadership team for
Risk Management in the Financial
Services Industry.
► Fields of expertise: Enterprise Risk
Management, Risk Governance,
Compliance and regulatory change,
Capital Optimisation and Internal Audit.
► MSc in International Political Economy,
London School of Economics.
► Associate of the Chartered Insurance
Institute, London.
Slide 2
01 Regulatory Radar
02 Compliance in Insurance
03 Ethics
04 Cybersecurity
05 The future of work in insurance
Side 3
Regulatory Radar August 2017
Slide 4
Key regulations impacting the insurance
industry
IDD
Insurance Product Information Document.
PRIIPs – KID
Regulatory technical standards on the content and the review of key information document
4. EU Money Laundering Directive
A centralized register of beneficial ownership for both entities and trusts will be introduced
123
GDPR
General Data Protection Regulation. Reinforce data protection rights of individuals
IFRS 17
New accounting rules impacting the way insurers will present their results
45
Side 5
Insurance Product Information Document
► Impact on clients and all EU
► Introduces principles that insurance distributors must
“always act honestly, fairly and professionally in
accordance with the best interests of customers” and that
information must be “fair, clear and not misleading”.
► Insurance distributor must inform the customer if it is
possible to buy the different components separately.
► All sellers of insurance products, including those who sell
directly to customers. Should cover 98% of the market
Slide 6
1
PRIIPs
► PRIIPS: EU regulation for packaged products sold to retail
investors
▬ A product that is either an investment product or an insurance-
based investment
▬ Defines responsibilities for manufactures and distributors
▬ Complements MiFID II measures on the distribution of financial
instruments
▬ Predefined KID template will enable customers to compare a
variety of products by risk, return and costs.
▬ Greater transparency might result in strategic review of product
offerings.
Slide 7
2
Four assessments for each product
RiskTarget market
Costs
Return
Slide 8
Predefines KID - Template
Reward
Costs and
charges
Risk
Narrative
Slide 9
4th EU Money Laundering Directive
► Directly applicable in all Member States from June 26
2017.
► One of the key points is to Know Your Customer (KYC)
► The primary modifications relate to following areas
▬ Risk based approach
▬ Customer due diligence (CDD)
▬ Ongoing monitoring
▬ Beneficial ownership
▬ Politically exposed persons (PEPs)
▬ Third party equivalence.
▬ Obligations to report suspicious transactions
► Financial penalties lines of up to at least €5 million
Slide 10
3
General Data Protection Regulation GDPR
► Key risks: Stronger compliance regime and auditability.
Severe penalties for non-compliance or failure to report
breaches
► Greater control over personal data, including need for
clear consent for processing, easier access, rights to
rectification and deletion, right to object to profiling, and
right to portability between service providers.
► Aims to create consistency across EU, especially cross-
border cases. Organisations with many subsidiaries will
only have to deal with the Data Protection authority of its
main establishment in such cross-border situations.
Slide 11
4
IFRS 17 – A single accouting approact5Most important impact
Single, consistent standard across
geographies
Based on current assumptions for each
reporting period
Impact likely most significant for life
insurance products
Exposure approach to recognition of profit
and revenue – as and when insurance or
investment services are provided
Significant changes in disclosures
Greater insight into sources of profit within
the business
(e.g. underwriting, expenses, investment
returns, onerous contracts etc.)
Assumptions used in the valuation of
insurance contact liabilities reflect the
characteristics of the insurance contract
rather than the risk related to asset /
investment activity
Single
accountin
g
approach
Provides up-to-date
market consistent
information of
obligation including
value of options and
guarantees
Underwriting revenue
and expenses are
recognised over
time in comparable
way to other non
insurance business
Provides separate
information about
the investment
and underwriting
performance
Reflects time
value of
money
5 1
2
3
4
IFRS 17 is aiming to improve financial reporting by providing meaningful
and comparable information across companies and jurisdictions
01 Regulatory Radar
02 Compliance in Insurance
03 Ethics
04 Cybersecurity
05 The future of work in insurance
Side 13
Compliance is the ultimate responsibility ofthe board…
► Lesson learned from the Financial Crises in 2008:
The tone at the top and the culture are key to maintaining compliance in any organization
Slide 14
Riskgovernance
Risk appetiteframework
Riskaccountability
(3LoD)
Controlseffectiveness
Risk transparency,MIS and data
Talent andincentives
…but must be top of mind of all insuranceprofessionals
Slide 15
Risk Management System
CxOs
All Risk Taking Business Units
- Marketing/sales
- Underwriting
- Support
- Claims
- Legal
Strategy, risk appetite and policy
Board
Risk Modelling Function
1st Line 2nd Line 3rd Line
Own Risk and Solvency Assessment
Risk Management Function
Compliance Function
Actuarial Function
Audit Committee
Supported by Internal Audit
Internal Control Framework
The better the question. The better the answer.�The better the world works.
DISCUSSION:
What role can educational institutions take regarding compliance and regulations?
01 Regulatory Radar
02 Compliance in Insurance
03 Ethics
04 Cybersecurity
05 The future of work in insurance
Side 17
«Ethics comes before the
rules, during the rules and
after the rules»
Professor Luciano Flodi, Oxford Internet Insitute, UK
Slide 18
Ethics in theory – two ethical positions
DeontologyUtilitarianismEthical
position
Slide 19
Individual perspectiveCollective perspective
Dilemma: Self-Driving Cars
Scenario:
Self-driving car with sudden brake
failure. How should the car be
programmed to react ?
Slide 20
Use of telematics for insurance providers
Monitoring insurance taker,
feeds real-time data to
insurance provider. How
the insurance provider
handles the data is of high
importance.
Car Insurance Health Insurance
Slide 21
The better the question. The better the answer.�The better the world works.
DISCUSSION:
What are the ethical dilemmas when collecting and using large amounts of sensitive data?
«The dating app knows me better than I do..»
Slide 23
The better the question. The better the answer.�The better the world works.
DISCUSSION:
What role can educational institutions take regarding ethics?
Employees
Board
ManagementNorms
Internal
Policies
Culture
Values
Side 25
Can ethics be implemented?
Increased focus from
managementMandatory training course on Ethics
Ethics needs to be
curriculum at all
UniversitiesAwareness
How to influence behaviour and conduct?
Side 26
01 Regulatory Radar
02 Compliance in Insurance
03 Ethics
04 Cybersecurity
05 The future of work in insurance
Side 27
Cybersecurity is one of the greatest threatsto financial institutions today
Slide 28
Side 29
Pretexting ID Spoofing
Pharming Vishing
Spoofing
Smishing
Baiting PhishingSocial
Engineering
Social EngineeringUsing manipulative methods to obtain confidential information through unauthorized methods
Awareness is key to reducing the risk ofbecoming the next headline
Slide 30
01 Regulatory Radar
02 Compliance in Insurance
03 Ethics
04 Cybersecurity
05 The future of work in insurance
Side 31
The future of work in insuranceSkilled people, lean teams and enabling technology
► Talent will be more important than ever
► Higher competence – fewer workers
► Fewer human touchpoints and more focus on maximising
the customer experience
► Robots will become more than a 1/3 of the workforce
Slide 32
”Machines are bad at creativity, interpersonal
skills and emotional intelligence, manual
dexterity and physical mobility”
(Erik Brynjolfsson, professor at MIT)
Roboadvisinglow-cost, tailored investment advisory services
Slide 33
‘Tactical’
investing – not
set allocations
but actively
managing
accounts
through market
movements.
ETFs, Stocks
Assess
customers with
a small number
of basic
questions to
determine
investment
appetite.
Similar
investments.
Personal
advisors may
develop an
investment plan.
Results in a more
detailed portfolio
review service
and personal
relationship.
Side 34
Who will do what in an insurance company?
Insurance
company
Chat bots enabled by AI
Robots and software
Drones and satellites
Sensors
Human workforce
Side 35
Innovation
Championing the company purpose and driving
organisational capacity for change will be necessary to
accelerate innovation
Changing worker expectations
Management will emphasis the employee experience and talent
programs
Top priority for management
Ability to attract, lead and retain the best people will determine who survives
Insurance leaders will be more important
than ever
Side 36
Success factors for insurance companies
A clear vision of how future work will be performed1
A framework for making strategic choices2
Deep capabilities in talent development3
A culture that inspires and enables innovation4
Thank you
Questions?