(2 days)
This is a sample course outline. Courses can be modified to fit your needs and schedule.
Throughout history the concept of insurance has played a key role, providing greater stability and certainty for society and humanity. Insurance companies provide individuals, businesses, and other institutions the means to protect themselves against adverse events, as well as opportunities to save and invest. The social benefit provided by insurers derives not only from soundness of the insurance policies and other obligations to which they are committed. Insurance companies are also significant lenders, and their prudent lending and investment policies have great potential for facilitating growth and development. In order for insurers to deliver these benefits, insurance company executives must effectively and prudently manage risks, and directors must be certain that this is done to the highest standards.
How do insurance companies differ from many other financial service providers that grow enterprises by increasing their lending? What are the practical implications of this difference? What risks are inherent in the liabilities undertaken by insurers, including the various kinds of policies they write, and how can these risks be managed? Given the nature of these liabilities, what investments are sound and appropriate, and how can policyholders, management, and directors be confident of the strength and solvency of an insurer? How do liabilities and assets interact, and what resources are available to assure that there is an appropriate relationship between the two? Regardless of whether an insurer is providing life, health, or property protection, these key points and others are essential for understanding insurance enterprises and are the topics of this program.
- The business of insurance, the foundations for its growth and expansion, the inherent risks, and how to manage them
- Frameworks for analyzing the key drivers of insurance company performance and motivating and rewarding superior performers
- The fundamental distinctions between insurers and other providers of financial services, how these differences require specialized approaches to risk management, and why some insurers have prospered while others have not
Day 1
Global History and Current Map of Insurance: Risk-Taking and Liabilities
Practical Exercise: The Functioning of a General Insurer
How is insurance defined? What are its historic roots and how did it develop? What are its social, commercial and other purposes?
What are the categories of insurance? The nature of the insurance liability has a pervasive influence on the operation of the insurer. How do these differ by line of business: life, general, commercial, personal?
Because insurance serves a societal purpose, what is the interest of governments in the conduct of insurance?
Local and Regional Industry Structure and Economics: “Let’s Do the Math”
Practical Exercise: Insurance Conventions and Terminology
Review of insurer functions: policy issuance, premium investing
The balance sheet: components, unique aspects, key distinct attribute
Four key measures of underwriting
Four key measures of profitability
Introduction to one measure of the strength of the entire enterprise
What Is Risk?
Practical Exercise: Risk Assessment and Quantification
Practical Exercise: Identifying Risk Factors Specific to Insurers
Risk defined in the insurance underwriting and investment
Comparison to insurer risks to other financial risks
How risk is quantified, and common errors made in the process of estimating risk
Consideration of risk tolerances
Our Own Experiences as Customers and Board Members
Cases: Evaluation of Local Claims Decisions by Insurers
What is the client view of the insurance industry?
What have been your experiences as customers with claims?
Why does the industry sometimes suffer under such a ‘cloud’ of apprehension/suspicion?
What are your experiences with ‘risk management’ in insurance?
Where have risks been well or poorly underwritten?
Are there characteristics that make for good and bad insurance companies?
Day 2
Enterprise Risk Management (ERM) for Both Life and General Insurerst
Practical Exercise: Group Presentations on Enterprise Risk of a Life Insurer
Practical Exercise: Group Presentation on the Relative Benefits of Different ERM Metrics
Considering the underwriting and profitability measures from day one, how can they be used interactively? Are they sufficiently comprehensive?
Numerous risk factors emerge when evaluating an enterprise in its totality that cannot be properly evaluated in isolation. What are these enterprise-level risks?
Insurance supervisors have developed their own risk metrics, most often used to indicate weaknesses of insurers. This work can provide insight into the risks being managed by insurers, and knowledge of it also provides management and boards with the basis for some of their own yardsticks. What are these factors that have been identified by supervisors?
How do you compare and contrast measures of risk such as the capital adequacy ratio with value at risk approaches?
Balance Sheet Issues Unique to Insurance: How to Monitor and Supervise?
Why are insurance company balance sheets and income statements so opaque?
How can a board director cut through the ‘fog’ to ascertain the key financial tools? We’ll discuss risk acceptance, investment parameters, reserve management/actuarial science, balance sheet management, IFRS accounting vs. ‘actuarial’ accounting, fair value accounting issues, and capital management.
What are the roles of the signing actuary, the CFO, and other key people in an insurance company, and how does this function relate to other activities?
Board Responsibilities in Insurance Governance and Supervision
Case: Evaluation of an Insurer's Strategic Plan, Business Conduct, Risk Management
- What are the specific responsibilities of insurance company boards for which they are accountable? How do these relate to the various types of insurance companies?
- Beyond specific responsibilities, are there hallmarks of good governance for insurance company boards?
- What additional resources are available locally to board members that can be helpful as they fulfil their responsibilities?
- How should a board cope with insurance complexity and yet ensure that the company is run correctly?
- What is the role of ‘checklists,’ and where can they be applied by a board?
- How should board MIS be organized for effective supervision?
Red Flags: How to Avoid Major Error
How does a board inculcate a mentality of ‘prevention rather than cure’ without crippling the economic ambitions/growth of management?
What are the warning signs of an insurance company about to go wrong?
Excessive premium growth
Imprecise data and failure to ‘close accounts’
No independent review of actuarial calculation, models, and reserving policy
Changing senior management and inappropriate staff turnover
Lack of independence between risk monitoring and U/W
Ill-matched/ inappropriate investment management
Ill-judged broker and internal compensation
Closing Session: Why Insurance Matters
Insurance’s role in society is beneficial at many levels and is rapidly growing.
Individuals and society as a whole can measure their confidence in each other and the future according to the percentage of GNP devoted to insurance.
What additional resources are available locally to board members that can be helpful as they fulfill their responsibilities?
How should a board cope with insurance complexity and yet ensure that the company is run correctly?
How are boards of insurance companies and regulators best equipped to grow the insurance business safely?