Canadian Underwriter

More Intervention for Regulations? CCIR Chair Stresses Risk Management


March 25, 2010   by Terri Goveia


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Financial institutions—including insurers—must reexamine and redouble their risk management efforts in the wake of last year’s market meltdown and in anticipation of rapidly changing regulations, according to the head of Canada’s insurance regulators.

The Canadian Council of Insurance Regulators (CCIR) is putting special emphasis on credit scoring, Part XIII and wholesaling issues, establishing new committees to ensure that related regulations keep up with a shifting landscape, the CCIR’s chair told attendees at the Insurance Bureau of Canada’s (IBC) Regulatory Affairs Symposium October 30, warning that insurance regulations overall “may require a more intervention-driven approach.”

“We will make sure the insurance industry benefits from balance of fair regulation and measures that facilitate orderly development of financial markets,” Danielle Boulet said in prepared remarks to the symposium audience in Toronto. Boulet, the scheduled keynote speaker, was unable to attend, but participants still heard her remarks, read by Grant Swanson, the executive director of the Financial Services Commission of Ontario’s (FSCO) licensing and market conduct division.

Canadian regulatory groups and insurance associations–including Quebec’s AMF, OSFI, the Insurance Bureau of Canada (IBC) and the Canadian Institute of Actuaries, among others—are working together to ensure that standards—for capital adequacy, etc– meet current industry needs, she said. And while financial institutions have had some leeway in establishing their own capital requirements, they should be wary of some of the tools they use to do so, she said.

Modelling tools and programs meant to help financial institutions, including insurers, predict risk tolerance could create unnecessary risks themselves, Boulet, who also serves as the superintendent of solvency at the Autorité des marchés financiers (AMF), said.

“Regulatory authorities and financial institutions need to be aware of the risks associated with modeling and the risks inherent in modeling itself,” she  advised attendees.

In her remarks, Boulet noted that faulty modeling was a factor in last year’s financial crisis, reminding attendees that both creators and sellers of modeling programs must be held to the same scrutiny as any other business partner. “Without [that] assessment, it exposes financial institutions to risk,” she said, noting that  institutions should examine what the data reflects, whether the modeling timeline is long enough, and whether the crises simulated are realistic.

The aftermath of the financial meltdown also refocuses scrutiny on industry decision-makers, she said, adding that the AMF is slated to publish guidelines on responsibilities of company directors and senior officers.

Looking ahead, she pointed to the ongoing challenges to Alberta’s minor injury cap—“the repercussions could generate important liabilities for many insurers,” she noted–
climate change and credit scoring as significant regulatory challenges for insurers. When it comes to credit scoring, “it’s important to put the issue on the CCIR agenda,” she said.

This story was originally published by Canadian Insurance Top Broker.


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