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OSFI warns insurers to “think ahead more” at KPMG conference
Natural catastrophes, cyber risk are concerns that need to be addressed, regulator says.
Gloria Cilliers on December 9, 2016
Insurance companies need to “think ahead more” in order to stay ahead of the curve, according to Neville Henderson, OSFI’s Assistant Superintendent, Insurance Division.
Speaking at KPMG’s 25th Annual Insurance Conference held in downtown Toronto on Tuesday, Henderson said insurers need to focus their efforts more on the long-term.
Asked how insurers can get into the mindset of dealing with evolution and staying on the front foot, Henderson said that the efforts of the industry have been focused on profitability and satisfying shareholders, focusing more on the short-term instead of the long-term. “But the long-term is changing dramatically. We need to look forward, question oneself on what can happen to the capital position if some of the dire situations manifest, understand and address the issues to make that evolution. And in order to do that, we need to be better prepared in advance – that’s 90% of the battle. Companies should be thinking ahead more.”
Adapting to regulation in a world of unpredictable capable markets and digital developments is challenging, and companies need to do more than focus on year-end results and customer service, he added.
“When it comes to things like OSFI’s mandate – ensuring policy holder benefits are payable – companies tend to depend on things like reserving an actual standard, but things change over time, so stress testing is important in the long run, seeing what changes can happen 30, 40 years out and how that could affect the company’s capital position.”
Natural catastrophes loom large
In particular, companies should do further testing on natural catastrophes. “The real issue with nat cats in Canada is the size of the industry and its ability to take on a significant catastrophe. We need to look at reinsurance and our dependence on it, and its importance to the industry,” he said.
Henderson said the series of significant natural catastrophes, including the recent Fort McMurray wildfires, has taught the industry how to deal with clients, but that OSFI is looking at the concern regarding counterparty risk with reinsurance and its long-term effects.
Cyber risk key issue, OSFI says
Henderson added that the industry is not entirely prepared for cyber risk yet.
Cyber was generating into a “disgusting mess” creating disruption, he said, and OSFI is trying to get companies to do a self-appraisal of where they stand on cyber risk and their plans going forward. “Mostly, the big companies have addressed it, but some smaller companies have not.”
There’s opportunity in bringing to market new products in cyber, Henderson said, but pointed out the reality of a constantly changing environment that necessitates companies to continue to innovate. “New markets are being created and if we ignore those markets, the industry will become redundant. So it does need to address them.”
Asked about OSFI’s Christmas wish list for the insurance industry, Henderson said: “I think the industry is facing a lot of disruptive challenges that’s hard to accommodate. I hope the volatility decreases.”
OSFI warns insurers to “think ahead more” at KPMG conference
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