We are all aware of the growing tide of regulation that is sweeping across the world, not least the increasing transparency demanded by regulators and certain institutions. Most of us are less (or not) aware, however, of the International Association of Insurance Supervisors (IAIS) and its likely impact on the working lives of IFAs across the globe, in the near future.
The IAIS is a voluntary membership organisation of insurance supervisors and regulators from more than 200 jurisdictions in nearly 140 countries. It quotes as its mission: “To promote effective and globally consistent supervision of the insurance industry in order to develop and maintain fair, safe and stable insurance markets for the benefit and protection of policyholders and to contribute to global financial stability”.
I can already hear you asking: “How is this relevant to the IFA sector?” Well, the IAIS has created the insurance core principles (ICPs) and it is these that will almost certainly impact on your life over the next few years.
There are 26 ICPs and they broadly encompass most aspects of insurance business and the regulatory environment including corporate governance, solvency capital, crisis and risk management, as well as consumer issues. One thing seems sure – the implementation of these principles is likely to have a profound impact on insurance companies – and ultimately on IFAs as well, given the amount of business placed by professional advisers via international life assurance bonds.
One of the key effects of the ICPs will be to make insurance companies evaluate and report risks in a more thorough and extensive manner. To do this, such companies will have to assess risk in a different way.
This will ultimately affect and alter the business strategy of the insurance sector, directly altering not only how insurance companies engage with advisory businesses but also which IFA companies they feel able to maintain terms of business with.
Commission/remuneration structures will also change – it seems highly likely there could well be a drive towards far less initial remuneration, with an associated move towards increased ongoing revenue models. Indemnity commissions, certainly in their present guise, may become a feature of the past far more rapidly than any of us would have believed until now.
It is true that membership of the IAIS is voluntary but the fact that 97% of the world’s insurance premiums are received by its members is obvious proof of its importance.
Furthermore – and perhaps most importantly – the ICPs will now form part of the criteria for a jurisdiction to receive a ‘clean bill of health’ from the IMF. As no major financial centre wants, or can afford, to be removed from the IMF ‘white list’, this alone stresses the importance of the ICPs.
The other key aspect to consider in all of this is timescale – and once again this might surprise you. For instance, the Isle of Man intends to have a full framework in place for the ICPs by the autumn of next year – in other words, less than 12 months away. This framework will include a specific schedule for the implementation of all the principles.
When added to the other major regulatory developments taking place across the world, the ICPs are likely to lead to even speedier transparency and the more rapid development of new business practices.
On a positive note, I feel this actually represents a fantastic opportunity for progressive IFA companies that plan ahead and embrace the new environment that will result. This may sound a little trite but we are already seeing some evidence of this in markets that have made major recent regulatory changes.
As well as my international role I am also involved in the UK IFA sector and I can confirm that, almost a year since the commencement of RDR, the grass has proved to be far greener than expected for the better managed companies and forward-thinking advisers. It is clear – and not really very surprising – that the businesses that embraced change, and started planning sooner, are the ones that are finding the new world far more amenable. I truly hope that the international IFA community can learn from this.