The Malta Financial Services Authority (MFSA) on Thursday urged insurance companies to further enhance the current composition of their Board of Directors and collective competencies in order to implement systems of governance in a more effective manner.
It also emphasised the need to improve their understanding of the resilience of their business model to stress scenarios.
This call for action came after the MFSA published the findings from the latest volume of its Nature and Art of Supervision series, released with the intention of communicating its supervisory approach amongst licensed entities, together with the outcome.
The latest volume focuses on the authority’s oversight of insurance and reinsurance undertakings, and insurance intermediaries whose head office is in Malta, outlining the main focus areas of supervision, carried out through on-site visits and desk-based reviews. It also highlights the common recurring weaknesses and shortcomings which the MFSA has identified during the course of its interactions with insurance providers.
The report stated that a number of insurance entities have also been found to hold “inadequate compliance plans and reporting processes,” whether for external reports to the MFSA, as well as internally to their respective Board of Directors. The MFSA stated that it expects that during board meetings held by these entities, “more time is dedicated towards regulatory compliance matters, and assessing the effectiveness of their governance, risk management system and internal controls.”
It also noted that more proper documentation on these controls, particularly when it comes to claims handling and governance of data, is needed.
In terms of business continuity, the authority’s report indicated that some of the contingency plans inspected are “neither being regularly tested nor reviewed” by insurance undertakings. They also do not include any exit strategies for outsourced critical activities.
The authority also noted that when it comes to the demands and needs test that insurance firms are obliged to carry out with clients, the assessments that were conducted were “weak.” Additionally, tied insurance intermediaries were not sufficiently knowledgeable about certain pre-contractual disclosures which they are bound to provide to clients, including those related to the procedure that one should follow in case of complaints, and the role of the Arbiter for Financial Services. The report also stated that some insurances companies’ frameworks to handle complaints are also lacking.
Commenting on the report, MFSA Head of Insurance and Pensions Ray Schembri said: “With this publication, we look more closely at the supervisory priorities which the MFSA has set for Malta’s insurance sector, and how we addressed them in our supervisory engagement with practitioners.”
He added that through the communication of these findings, the MFSA aims to set out its expectations for insurance undertakings and intermediaries, which they are required to meet “at all times.”
“The various outreach initiatives listed in the document are also testament to our commitment to engage regularly with and guide insurance providers on how they can achieve regulatory compliance and as a result, strengthen their organisational robustness while ensuring they act honestly, fairly, and in the best interest of their clients,” Mr Schembri explained.
Additionally, the publication also provides an overview of the regulatory changes that the MFSA implemented in the past year, together with future developments in the regulatory framework, such as the transportation of the Motor Insurance Directive (“Directive 2009/103/EC”). This particular directive ensures that injured parties are protected through effective arrangements for compensation and improves the rights of policyholders, especially when an insurer winds up due to insolvency.
The full Nature and Art of Supervision Volume IX – Insurance is available on the MFSA’s website by clicking here.
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