EIET ConferenceCompliance and Ethics in Insurance13 October, Kristin Bekkeseth, Partner, EY Financial Services

Kristin Bekkeseth

► Partner in EY EMEIA Financial Services.

► Member of the Nordic leadership team for

Risk Management in the Financial

Services Industry.

► Fields of expertise: Enterprise Risk

Management, Risk Governance,

Compliance and regulatory change,

Capital Optimisation and Internal Audit.

► MSc in International Political Economy,

London School of Economics.

► Associate of the Chartered Insurance

Institute, London.

Slide 2

01 Regulatory Radar

02 Compliance in Insurance

03 Ethics

04 Cybersecurity

05 The future of work in insurance

Side 3

Regulatory Radar August 2017

Slide 4

Key regulations impacting the insurance

industry

IDD

Insurance Product Information Document.

PRIIPs – KID

Regulatory technical standards on the content and the review of key information document

4. EU Money Laundering Directive

A centralized register of beneficial ownership for both entities and trusts will be introduced

123

GDPR

General Data Protection Regulation. Reinforce data protection rights of individuals

IFRS 17

New accounting rules impacting the way insurers will present their results

45

Side 5

Insurance Product Information Document

► Impact on clients and all EU

► Introduces principles that insurance distributors must

“always act honestly, fairly and professionally in

accordance with the best interests of customers” and that

information must be “fair, clear and not misleading”.

► Insurance distributor must inform the customer if it is

possible to buy the different components separately.

► All sellers of insurance products, including those who sell

directly to customers. Should cover 98% of the market

Slide 6

1

PRIIPs

► PRIIPS: EU regulation for packaged products sold to retail

investors

▬ A product that is either an investment product or an insurance-

based investment

▬ Defines responsibilities for manufactures and distributors

▬ Complements MiFID II measures on the distribution of financial

instruments

▬ Predefined KID template will enable customers to compare a

variety of products by risk, return and costs.

▬ Greater transparency might result in strategic review of product

offerings.

Slide 7

2

Four assessments for each product

RiskTarget market

Costs

Return

Slide 8

Predefines KID - Template

Reward

Costs and

charges

Risk

Narrative

Slide 9

4th EU Money Laundering Directive

► Directly applicable in all Member States from June 26

2017.

► One of the key points is to Know Your Customer (KYC)

► The primary modifications relate to following areas

▬ Risk based approach

▬ Customer due diligence (CDD)

▬ Ongoing monitoring

▬ Beneficial ownership

▬ Politically exposed persons (PEPs)

▬ Third party equivalence.

▬ Obligations to report suspicious transactions

► Financial penalties lines of up to at least €5 million

Slide 10

3

General Data Protection Regulation GDPR

► Key risks: Stronger compliance regime and auditability.

Severe penalties for non-compliance or failure to report

breaches

► Greater control over personal data, including need for

clear consent for processing, easier access, rights to

rectification and deletion, right to object to profiling, and

right to portability between service providers.

► Aims to create consistency across EU, especially cross-

border cases. Organisations with many subsidiaries will

only have to deal with the Data Protection authority of its

main establishment in such cross-border situations.

Slide 11

4

IFRS 17 – A single accouting approact5Most important impact

Single, consistent standard across

geographies

Based on current assumptions for each

reporting period

Impact likely most significant for life

insurance products

Exposure approach to recognition of profit

and revenue – as and when insurance or

investment services are provided

Significant changes in disclosures

Greater insight into sources of profit within

the business

(e.g. underwriting, expenses, investment

returns, onerous contracts etc.)

Assumptions used in the valuation of

insurance contact liabilities reflect the

characteristics of the insurance contract

rather than the risk related to asset /

investment activity

Single

accountin

g

approach

Provides up-to-date

market consistent

information of

obligation including

value of options and

guarantees

Underwriting revenue

and expenses are

recognised over

time in comparable

way to other non

insurance business

Provides separate

information about

the investment

and underwriting

performance

Reflects time

value of

money

5 1

2

3

4

IFRS 17 is aiming to improve financial reporting by providing meaningful

and comparable information across companies and jurisdictions

01 Regulatory Radar

02 Compliance in Insurance

03 Ethics

04 Cybersecurity

05 The future of work in insurance

Side 13

Compliance is the ultimate responsibility ofthe board…

► Lesson learned from the Financial Crises in 2008:

The tone at the top and the culture are key to maintaining compliance in any organization

Slide 14

Riskgovernance

Risk appetiteframework

Riskaccountability

(3LoD)

Controlseffectiveness

Risk transparency,MIS and data

Talent andincentives

…but must be top of mind of all insuranceprofessionals

Slide 15

Risk Management System

CxOs

All Risk Taking Business Units

- Marketing/sales

- Underwriting

- Support

- Claims

- Legal

Strategy, risk appetite and policy

Board

Risk Modelling Function

1st Line 2nd Line 3rd Line

Own Risk and Solvency Assessment

Risk Management Function

Compliance Function

Actuarial Function

Audit Committee

Supported by Internal Audit

Internal Control Framework

The better the question. The better the answer.�The better the world works.

DISCUSSION:

What role can educational institutions take regarding compliance and regulations?

01 Regulatory Radar

02 Compliance in Insurance

03 Ethics

04 Cybersecurity

05 The future of work in insurance

Side 17

«Ethics comes before the

rules, during the rules and

after the rules»

Professor Luciano Flodi, Oxford Internet Insitute, UK

Slide 18

Ethics in theory – two ethical positions

DeontologyUtilitarianismEthical

position

Slide 19

Individual perspectiveCollective perspective

Dilemma: Self-Driving Cars

Scenario:

Self-driving car with sudden brake

failure. How should the car be

programmed to react ?

Slide 20

Use of telematics for insurance providers

Monitoring insurance taker,

feeds real-time data to

insurance provider. How

the insurance provider

handles the data is of high

importance.

Car Insurance Health Insurance

Slide 21

The better the question. The better the answer.�The better the world works.

DISCUSSION:

What are the ethical dilemmas when collecting and using large amounts of sensitive data?

«The dating app knows me better than I do..»

Slide 23

The better the question. The better the answer.�The better the world works.

DISCUSSION:

What role can educational institutions take regarding ethics?

Employees

Board

ManagementNorms

Internal

Policies

Culture

Values

Side 25

Can ethics be implemented?

Increased focus from

managementMandatory training course on Ethics

Ethics needs to be

curriculum at all

UniversitiesAwareness

How to influence behaviour and conduct?

Side 26

01 Regulatory Radar

02 Compliance in Insurance

03 Ethics

04 Cybersecurity

05 The future of work in insurance

Side 27

Cybersecurity is one of the greatest threatsto financial institutions today

Slide 28

Side 29

Pretexting ID Spoofing

Pharming Vishing

Spoofing

Smishing

Baiting PhishingSocial

Engineering

Social EngineeringUsing manipulative methods to obtain confidential information through unauthorized methods

Awareness is key to reducing the risk ofbecoming the next headline

Slide 30

01 Regulatory Radar

02 Compliance in Insurance

03 Ethics

04 Cybersecurity

05 The future of work in insurance

Side 31

The future of work in insuranceSkilled people, lean teams and enabling technology

► Talent will be more important than ever

► Higher competence – fewer workers

► Fewer human touchpoints and more focus on maximising

the customer experience

► Robots will become more than a 1/3 of the workforce

Slide 32

”Machines are bad at creativity, interpersonal

skills and emotional intelligence, manual

dexterity and physical mobility”

(Erik Brynjolfsson, professor at MIT)

Roboadvisinglow-cost, tailored investment advisory services

Slide 33

‘Tactical’

investing – not

set allocations

but actively

managing

accounts

through market

movements.

ETFs, Stocks

Assess

customers with

a small number

of basic

questions to

determine

investment

appetite.

Similar

investments.

Personal

advisors may

develop an

investment plan.

Results in a more

detailed portfolio

review service

and personal

relationship.

Side 34

Who will do what in an insurance company?

Insurance

company

Chat bots enabled by AI

Robots and software

Drones and satellites

Sensors

Human workforce

Side 35

Innovation

Championing the company purpose and driving

organisational capacity for change will be necessary to

accelerate innovation

Changing worker expectations

Management will emphasis the employee experience and talent

programs

Top priority for management

Ability to attract, lead and retain the best people will determine who survives

Insurance leaders will be more important

than ever

Side 36

Success factors for insurance companies

A clear vision of how future work will be performed1

A framework for making strategic choices2

Deep capabilities in talent development3

A culture that inspires and enables innovation4

Thank you

Questions?