Gibraltar review on delegated underwriting, pricing and claims

They shared their plans to conduct a thematic review focusing on insurer’s outsourcing arrangements, specifically those relating to delegated underwriting and pricing; oversight of claims; and the oversight of IT, data, and cyber security.

The expected timeline for the review to be completed is year-end 2024, with feedback to follow by Q1 2025. 

Areas of focus and aims for the thematic reviews

The GFSC’s areas of focus for their pricing and underwriting thematic review, include:

• Governance of pricing models and pricing controls
• Underwriting Controls
• Board and Committee Oversight
• Interaction with the actuarial function
• Use of Internal Audit or Validation checks
• MI provided to the board and other committees.
• Consideration of business strategy

The oversight of claims outsourcing areas of focus for the thematic review, include:

• The structure of the board and claims committee
• Quality and appropriateness of documentation, oversight, information packs and minutes
• Key Performance Indicator data considered
• How Internal audit is used for the oversight of claims outsourcing, including the frequency of Internal Audit reviews

International regulatory trends

Regulators expect insurers to establish and maintain a robust risk management structure that ensures that the Board has appropriate governance and oversight of the underwriting, pricing and claims activities performed by insurers themselves and those performed by outsourced service providers and delegated authorities.

Regulators in other jurisdictions have imposed significant fines when performing similar reviews on outsourced underwriting and claims activities, noting the following concerns:

• Insurer’s failure to implement adequate risk management and governance systems with respect to outsourced service providers and delegated authorities;
• A lack of appropriate resources and experience at outsourced service providers and delegated authorities;
• A lack of board oversight over pricing and underwriting decisions; and
• Systematic weaknesses in internal controls.

Good practices for insurers to consider implementing

As a first step, insurers could assess the effectiveness of controls within their outsourcing process. During the next review a comparison should be conducted of the insurer’s outsourcing process to what the regulators consider to be good practice and to the GFSC’s focus areas.

Outsourcing policy

This should meet requirements of the Solvency II directive including the reasons behind the decision to outsource services and how these fit into the business strategy. The outsourcing policy should also be aligned with insurers’ long term business strategy.

Governance arrangements

Board, Claims, and Underwriting committees should be adequately structured and well documented with sufficient oversight in place including on Underwriting and Claims activities. Each committee meeting should ensure that information presented in the packs are relevant and reliable, and have minutes taken.

Pricing models and Underwriting guidelines should be adequately governed, and controls implemented with discounts and limits applied being monitored. This should include data governance, including management of data integrity, data availability and the data change process.

Provider selection / assessment

A defined selection process for assessing and selecting service providers should be in place, which should include consideration an assessment of their resources and expertise across all levels, and their data management practices and policies.

Monitoring and evaluating outsourcing procedures

The controls and validation checks that are performed on the data in the packs provided to the board and other committees as well as Internal Audit’s role in the validation and oversight and how often the reviews occur.

Consideration should be given to the nature of frequency of the interactions between outsourced service providers’ and Actuarial and Internal audit Functions.

How can we help?

Grant Thornton are well positioned to assist your firm with such a review and any Outsourcing and regulatory related queries. With an experienced Insurance Regulatory team, including ex-insurance regulators, we understand the practical operational aspects and can assist firms in the interpretation of regulatory requirements, guidance, and feedback.