Insurance update: The Nature and Art of Financial Supervision (Volume IX)

The 1st February 2024 marked the publication by the Malta Financial Services Authority (“MFSAs”) of its 9th volume from its series on ‘The Nature and Art of Financial Supervision’.  This new volume focuses on the insurance sector, particularly on Malta-based (re)insurance undertakings and insurance intermediaries.

Through this publication, the regulator, inter alia, (1) identifies the off-site and on-site work which has been carried out by the Insurance and Pensions Supervisory team and the Conduct Supervision team in the insurance supervision space, (2) highlights areas where enhancements are being strongly encouraged to address common deficiencies and gaps which have been observed from MFSA’s supervisory work and (3) clarifies the Authority’s expectations to address the weaknesses identified.

The main common deficiencies which the Authority came across during its supervisory work include:

Governance

    Common weaknesses/deficiencies

Composition and collective competencies of the Board
Board Committees reporting structures
Understanding of business model resilience to stress scenarios
Board meetings’ minutes
Discussion time on compliance matters, effectiveness of Board and Committees performance, system of governance reviews, effectiveness of risk management system and internal controls
Fit and proper assessments

Compliance

    Common weaknesses/deficiencies

Knowledge of the applicable legal and regulatory framework
Resources and support of the Compliance function
Compliance plans and comprehensive and timely reporting of compliance matters
Disclosure requirements and complaints handling

Internal Audit

    Common weaknesses/deficiencies

Comprehensive internal audit plans

Distribution Channels

    Common weaknesses/deficiencies

Review and monitoring of distribution network
Internal controls, including manuals, documented procedures and reporting processes
Oversight being exercised by appointed individual within the regulated entity

Reserving and Claims Handling

    Common weaknesses/deficiencies

Documentation of reserving process, assumptions and methodology
Audit checks and audit trails
Claims handling procedures, processing and oversight

Business Continuity

    Common weaknesses/deficiencies

Documenting, testing, review and updating of contingency and business continuity plans
Exit strategies for outsourced critical or important functions or activities

Complaints Handling

    Common weaknesses/deficiencies

Complaints register
Insurers’ monitoring of intermediaries compliance with complaints handling policy and procedures
Timely complaints handling
Complaints analysis

Disclosure Requirements by Tied Insurance Intermediaries

    Common weaknesses/deficiencies

Awareness of IPIDs and KIDs content
Adequate and comprehensive knowledge of pre-contractual disclosure requirements

Demands and Needs

    Common weaknesses/deficiencies

Understanding and implementation of the demands and needs assessment

Should you require any clarifications on the above, kindly contact Matthew Bianchi, Romina Bonnici, Philippa Taylor-East or Elaine Magri.

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