I recently contacted a few regional ‘A’ rated insurance companies, in preparation for a corporate governance article, to get sound-bites from chief executives or managing directors on the drivers of corporate governance in our industry in the United Arab Emirates.
I soon gave up after learning from the horse’s mouth that there are publicly listed, A-rated insurance companies in the region that do not even have a compliance officer. Had I held my breath waiting for replies I would have died of asphyxiation.
Out of the three ‘A’ rated UAE insurance companies, one does not have a compliance officer, while a second has the compliance function hijacked by legal. However, the third does seem to have a compliance function in place. All are publicly listed and it is a securities and commodities authority requirement for public listed companies to have compliance function in place.
Is it a case of one out of three isn’t bad, or should regulators be taking a closer look at how insurers conduct their business in this market? These are, after all, the largest three companies in the market commanding around 40% of all UAE business.
I attended September’s Compliance Connect Seminar and, while listening to David Cafferty, senior compliance advisory specialist at Clyde & Co, two loaded questions about insurance companies caught my attention. Is compliance over-ruled by legal? And is compliance over-ruled by management?
In a nutshell these two questions embody fundamental challenges that corporate governance faces universally and even more so in a region where the corporate governance culture is still in the relatively early stages of development.
Setting the tone
We are so used to hearing repeatedly that the tone needs to be set from the top, that management needs to drive change and so on.
To borrow perhaps a very harsh expression, many compliance functions are ‘fatigued with indolence’, trapped between a revenue hungry senior management and a politically correct legal function playing dodge ball.
While most of the clichés we hear may be true, neither senior management nor legal nor indeed the regulators are single-handedly responsible for corporate governance.
It is culture that drives corporate governance, and culture, by implication, emanates collective behaviour across the market.
Controlling the purse strings
Can one imagine a world where chemists dictate the order of the day for doctors, instructing them how to conduct their profession and controlling their purse strings?
In parallel with the medical profession, insurers, like chemists, sell products available on their shelves, or ones they can concoct from the capacity available to them. They do not generally carry professional liability insurance for the products that they provide.
Brokers, in contrast, are like the doctors in the equation. They primarily provide independent advice and not products. They are also professionally liable for wrongful advice, hence professional indemnity insurance being a legal requisite.
I can illustrate the above from a recent incident I experienced. Called in to examine the policies of a potential client insuring close to €50m of stocks on the instructions of his clients I quickly realised that, by virtue of the marine clause under a standard property all risks policy wording, the client had virtually no cover.
I queried this with the insurance company on the basis that it had happily received hundreds of thousands of euros in premium over a number of years from the client.
Their reply was simple and direct: “The client did not ask for any special amendments or qualification to the policy and we supplied a standard policy.” Needless to say the incident earned me a letter of authority.
If so much professional responsibility rests on the shoulders of brokers, why do they not seem to have a voice in the UAE insurance industry? Why is it that insurers seem to have a stronger voice when it comes to the implementation of legislation?
If consumer protection is paramount and it is the broker that is the agent of the insured, shouldn’t brokers be a respected voice at regulatory level?
Changes are happening, perhaps because there is a new director general on board. But much still needs to be done.
Brokers’ views have been requested and received by the authority in anticipation of the new draft broker legislation. This is certainly a very significant and positive step. But several articles need substantial amendments. To what extent will the voice of brokers be heard in this respect?