The Society of Financial Examiners (SOFE) Career Development Seminar (CDS) is always packed with high quality educational sessions. At the 2017 CDS, several notable topics were discussed including impacts of the financial crisis, lessons learned on fraud and NYS DFS cybersecurity requirements.
The financial crisis of 2008 caused insurance regulators to become more vigilant of national and global economic health impacts on the organizations they regulate. Most insurers survived the crisis, however, major concerns were raised regarding weaknesses of the regulatory system, which the National Association of Insurance Commissioners (NAIC) has since reacted to. As a part of the NAIC’s Solvency Modernization Initiative, the Risk Management and Own Risk and Solvency Assessment (ORSA) Model Act has enhanced enterprise risk management (ERM) requirements to help insurers better understand and plan for market risks. Regulators have already seen the benefits of ORSA through more proactive risk analysis by insurance companies of their ability to meet obligations and through enhanced communication between insurers and regulators.
The impact of ethics on the examination process was a common theme throughout the sessions. As insurance companies are built on a foundation of trust, lapses such as policy misrepresentations, inflated claims, staged incidents, fraudulent claims or manipulation of financial results can extremely affect the company’s ability to achieve and retain clients.
One session reviewed key details of real-world fraud events to understand how the breakdowns were able to occur and to identify common themes. They found the fear of retaliation to be a major roadblock to timely reporting of fraudulent activities. In many fraud cases, someone knew of, or strongly suspected, fraud but remained silent. It’s critical for institutions to establish a method of reporting suspected ethical violations that employees can trust without fear of retribution. Additionally, most fraud cases involve executives or upper level management which creates a roadblock to reporting. Attendees discussed questions examiners can ask to evaluate the tone at the top and to gauge the likelihood of fraud.
Cybersecurity regulations have been a hot topic this year with the New York Department of Financial Services (NYS DFS) legislation and recent passage of the NAIC Data Security Model Act. The various regulations basically require institutions to adopt a formalized cybersecurity program to protect confidentiality, integrity and availability of information. Session attendees discussed aspects of the NYS DFS regulation, as well as the impact it has on risk-based examinations of these entities. Organizations are working through adoption of the NYS DFS regulations currently and preparing for the NAIC rules. Many regulators are now looking to ensure they effectively examine organizations compliance. This is likely to be a topic of great discussion as early implementations and initial examinations get underway.
For more information on these topics, or to learn how Baker Tilly insurance specialists can help, contact our team.