FOUNDATION FOR SAFE AND SOUND OPERATION OF AN INSURANCE COMPANY

Insurance Companies need to have internal controls that are adequate depending on the nature and volume of the business. The purpose of internal control is to verify that the business of an Insurance Company is conducted in a prudent manner in accordance with policies and strategies established by the board of directors. This is done by laying out a broad framework that is intended to ensure that the board of directors will have access to the information required for proper decision making.

The board of directors must provide suitable prudential oversight and establish a risk management system that includes setting and monitoring policies so that all major risks are identified, measured, monitored and controlled on an on-going basis. The risk management systems, strategies and policies are approved and periodically reviewed by the board of directors. The board of directors must provide suitable oversight of market conduct activities and should also receive regular reporting on the effectiveness of the internal controls, internal deficiencies, either identified by management, staff, internal audit or other control personnel, are reported in a timely manner addressed promptly.

Internal control should address accounting procedures reconciliations of accounts, control lists and information for management.

Checks and balances are established to provide a degree of independence to the board and to make sure that actions are in line with the best interest of the institutions (as opposed to the interests of the shareholders for example). As well, a system of sanctions are in place so that boards will be able to be held accountable if their actions are not consistent with standards of sound business and financial practice.

 Internal control therefore addresses issues of cross-checking, dual control of assets , double signatures so that no one individual has fettered powers of decision. The internal and external audit, actuarial and compliance functions are part of the framework for internal control and must test adherence to the internal controls as well as to applicable laws and regulations.

The board of directors should monitor that transactions are only entered into with appropriate authorities, assets are safe guarded , accounting and other records provide complete ,accurate , verifiable and timely information, management is able to identify , assess, manage and control the risks of the business and hold sufficient Capital for these risks. Internal control should address clear accountability for all outsourced functions as if these functions were performed internally and subject to the normal standards of internal controls

 A system of internal control is critical to effective risk management and is a foundation for the safe and sound operation of an Insurance Company. It provides a systematic and disciplined  approach to evaluating and improving the effectiveness of the operation and assuring compliance with laws and regulations. It is the responsibility of the board of directors to develop a strong internal culture within its organization, a central feature of which is the establishment of systems for adequate communication of information between levels of management.

It is an essential element of an internal control  system that the board of directors receive regular reporting on the effectiveness of the internal control. Any identified weakness should be reported to the board of directors as soon as possible so that appropriate action can be taken. The board of directors is ultimately responsible for establishing and maintaining an effective internal system. The framework  for internal controls within the insurer includes arrangements for delegating authority and responsibility and the segregation of duties.

Insurance Companies should therefore have in place comprehensive risk management policies and systems capable of promptly identifying, measuring, assessing, reporting and controlling their risks.

                                                                                              Index       Previous     Next

Want to Check for the Premium Rating Guidelines?  Click here

                 Site Maintained by Pensions and Insurance Authority - PIA