IPEC tightens screws on insurance firms
LIVINGSTONE MARUFU
The Insurance and Pensions Commission (IPEC) has instructed industry players to provide minimum guiding principles that will protect the rights, benefits and interests of policyholders under the Governance and Risk Management Directive as it tightens on firms.
The directive, issued in terms of section 6(c) of the Insurance Act [Chapter 24:07], empowers the Commissioner to formulate standards for the conduct of insurance business with which registered insurers may be required to comply.
In a circular issued earlier this month, IPEC Commissioner Grace Muradzikwa said pursuant of the Insurance and Pensions Commission’s mandate to protect the rights, benefits and other interests of policyholders in terms of section 5(a) of the Insurance Act [Chapter 24:07], the ‘Commission hereby issues this directive on Governance and Risk Management for insurers’.
“This directive is meant to provide minimum guiding principles to ensure that insurers have effective systems of risk management including governance structures, internal controls and oversight functions,” Muradzikwa said.
She said the objective of this directive was to outline the minimum IPEC expectations and requirements for shareholders, board and management control functions of an insurer to ensure an effective governance and risk management framework is in place.
This directive is also meant to ensure that underwriters are managed in a sound and prudent manner by having in place systems for identifying, assessing, monitoring, and mitigating the risks that affect their ability to meet their obligations to policyholders.
According to the new directive, an insurer shall adopt sound and appropriate governance practices and procedures to support its work in a manner that promotes efficient, objective and independent judgment and decision-making.
Muradzikwa said the directive was based on the three lines of defence model, which is emerging as the best practice standard for the positioning of key control functions within an underwriter.
“As a first line of defence, operational management, has ownership, responsibility, and accountability for running the affairs of the underwriter, including designing and implementing internal control measures, assessing, controlling, and mitigating the risks faced by an underwriter,” she said.
“As a second line of defence, the risk management function facilitates and monitors the implementation of effective risk management practices by operational management and assists the risk owners in the management of all material risks. Compliance is responsible for ensuring implementation of the necessary procedures to comply with legal and other obligations, both internal and external to the insurer.”
Added Muradzikwa: “As a third line of defence, the Internal Audit Function will, through a risk-based approach, provide assurance to the underwriter’s board and senior management, on how effective the underwriter assesses and manages its risks, including the manner in which the first and second lines of defence operate. This assurance task covers all elements of an underwriter’s risk, compliance, and actuarial management framework i.e. from risk identification, risk assessment and response to communication of risk related information (throughout the underwriter and to senior management and the board.”
The actuarial function provides assurance to the board of directors and management regarding the accuracy of the calculations and the appropriateness of the assumptions underlying the premiums, insurance liabilities and the capital adequacy requirements.
The directive is applicable to all insures registered to underwrite insurance business in the Republic of Zimbabwe and the Commission reserves the right to amend this directive from time to time.”
Muradzikwa said the system of corporate governance of an insurer should promote the development, implementation and effective oversight of policies that clearly define and support the objectives of the insurer.
The system of corporate governance of an insurer should promote, define the roles and responsibilities of persons accountable for the management and oversight of an insurer by clarifying who possesses legal duties and powers to act on behalf of the insurer and under which circumstances and set requirements relating to how decisions and actions are taken including documentation of significant or material decisions, along with their rationale, she said.
It should also provide sound remuneration practices which promote the alignment of remuneration policies with the long-term interests of insurers to avoid excessive risk taking.
Muradzikwa said the Commission shall issue such approval after conducting a fit and proper test.
“In a bid to manage conflict of interest in placement of business, no insurer, shareholder of such an insurer, director or senior manager of an insurer, or such director/senior manager and his or her close relatives shall, directly or indirectly hold significant ownership and control in the affairs of an insurance broker, or reinsurance company and vice versa unless with the written approval from the Commission which approval will be subject to provision,” she said.
