internal audit and compliance functions of an insurer. ... adherence to the conduct standards, on an ongoing basis. ....
RISK FOCUS FINANCIAL LINES GROUP BULLETIN JUNE 2016
The Senior Insurance Managers Regime: increased accountability in insurance The move to introduce greater accountability in insurance is due to a number of developments: Solvency II requirements, European Insurance and Occupational Authority (EIOPA) requirements and a desire to align the conduct rules within insurance to those of the banking industry post 2008 economic crash.
The Senior Insurance Managers Regime (SIMR) reflects the
SIMR came into force last month, implementing new governance
regulators’ increased focus on greater personal responsibility. In
over the roles and conduct of senior managers in insurance
this bulletin we take a look at SIMR and what this could mean for
companies (essentially those individuals who run the business, or
your company and also you as an individual.
have responsibility for critical areas). Individuals who fall within the SIMR scope are detailed overleaf:
2 FINANCIAL LINES GROUP | Risk Focus | June 2016
Senior Insurance Management Function (SIMF)
These are individuals holding certain defined positions (e.g. Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Underwriting Officer). They will require pre-approval by the regulator. There are responsibilities that must be assigned to these individuals, they are subject to a fit and proper test, and they are also governed by the new conduct standards established by the SIMR.
Key function holders
This includes, as a minimum, individuals with responsibility for risk management, actuarial, internal audit and compliance functions of an insurer. The list is not exhaustive and will include any function that is of importance to the sound management of an insurer (e.g. the Prudential Regulation Authority (PRA) has suggested that Information Technology (IT) or claims management may also be deemed to be key functions under the SIMR). Key function holders do not require pre-approval, although firms must assess their fitness and propriety, including adherence to the conduct standards, on an ongoing basis.
Persons working within key functions
Persons working within key functions are not subject to any regulatory approval or notification requirements. However, firms must assess their fitness and propriety, including adherence to the conduct standards.
THE CONDUCT STANDARDS Those performing a SIMF, key function holders and persons working within key functions, are all bound by the new conduct standards. The conduct standards prescribed by the SIMR set out a basic standard of behaviour expected by all persons who are subject to the SIMR. They require, for example, all individuals subject to the regime to act with integrity, act with due skill, care and diligence and be open and co-operative with the regulator (tier 1 standards). Additional and more burdensome standards (tier 2 standards) apply for those holding a SIMF or key function holders, for example they are required to “take reasonable steps to ensure that the business of the firm for which [they] are responsible is controlled effectively”.
GOVERNANCE MAPS AND SCOPE OF RESPONSIBILITIES FORMS The SIMR requires an insurer to provide: 1. a governance map setting out the matrix of individuals who are responsible for running the insurer, identifying key functions within that insurer and putting names against each of those positions; and 2. a “scope of responsibilities” form
to make it easier for regulators to hold individuals personally responsible for regulatory breaches falling within their areas of responsibility. In light of these new burdens, it is important for individuals subject to the SIMR to ensure, on an ongoing basis, that their responsibility statements are accurate and reflect what they are actually responsible for
identifying in around 300 words
in practice. Individuals subject to the
precisely what each person holding
SIMR should make sure that they are
a SIMF is responsible for.
adequately protected (and can defend
Governance maps and Scope of Responsibilities Forms (SOF) are intended
themselves) in the event things go wrong and the regulator challenges something falling within their area of responsibility.
www.jltspecialtygroup.com | Risk Focus 3
WHAT DOES THIS MEAN FOR DIRECTORS AND OFFICERS (D&O) POLICIES? The wide definition of “insured persons”
doubt involve the interviewing of insured
offering legal helplines in their D&O
(or such similar definition) found in most
persons, when deciding whether or not
policies in order to provide clarity for
Directors & Officers (D&O) policies means
to make a self-report to the regulators. It
individuals within the scope of the SIMR
that senior insurance managers should
is in the interests of insured persons to
when exposures do arise.
already be covered under existing D&O
have coverage in their D&O policy to pick
policies so long as they are acting in a
up the costs of any legal representation
relevant managerial capacity. However,
they require should they be implicated in
there is no harm in amending the definition
such an internal investigation.
of “insured persons” to specifically refer to the new regime. If such individuals are found to be acting in an employee capacity as opposed to a managerial capacity then, as is currently the position, it may be that the D&O policy will be found not to respond on the basis that the professional indemnity or civil liability policy is the more relevant coverage.
The regulators have also implemented a similar regime for the financial services industry: the Senior Managers Regime.
It will be interesting to see whether the SIMR discourages individuals to take on senior insurance manager roles. If, as anticipated, individuals are increasingly targeted by the regulators leading to a greater number of claims on D&O policies, it may be that we will see higher limits of cover being purchased by companies for the
Under the SIMR there will be an
benefit of those individuals, as well as
increased onus on companies to self-
a greater focus on the structure of the
report matters to the regulators. As
programme, for example, by ring-
a result we believe there will be an
fencing part of the policy limit for
increase in companies undertaking
non-executive directors or main board
internal investigations, which will no
directors. We may also see more insurers
Under the SIMR there will be an increased onus on companies to self-report matters to the regulators.
4 FINANCIAL LINES GROUP | Risk Focus | June 2016
JLT Specialty Limited provides insurance broking, risk management and claims consulting services to large and international companies. Our success comes from focusing on sectors where we know we can make the greatest difference – using insight, intelligence and imagination to provide expert advice and robust - often unique - solutions. We build partner teams to work side-by-side with you, our network and the market to deliver responses which are carefully considered from all angles. Our London based management liability team was founded in 2001 and now looks after 350+ UK and international clients. Part of the Financial Risks division, with over 120 financial risks specialists, the team has a strong technical focus with an integrated client servicing, broking and claims service.
CONTACTS James Morris +44 (0)20 7528 4308
[email protected] Carey Lynn +44 (0)20 7558 3521
[email protected] JLT Specialty Limited The St Botolph Building 138 Houndsditch London EC3A 7AW www.jltspecialty.com Lloyd’s Broker. Authorised and regulated by the Financial Conduct Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London EC3A 7AW. Registered in England No. 01536540. VAT No. 244 2321 96. © June 2016 271902
This publication is for the benefit of clients and prospective clients of JLT Specialty Limited. It is not legal advice and is intended only to highlight general issues relating to its subject matter but does not necessarily deal with every aspect of the topic. If you intend to take any action or make any decision on the basis of the content of this bulletin, you should first seek specific professional advice.
