Regulators' demands for higher standards of professionalism within the re/insurance sector are being reflected in enhanced training support

The international insurance and reinsurance industry was dragged blinking into the harsh light of day in the aftermath of the 9/11 tragedy.

Suddenly, the payment of claims following the collapse of the World Trade Center towers was headline news, not least because insurers and policyholders held differing views on the amounts involved.

The shockwaves of the terrorist attacks were felt throughout the industry and beyond, with primary insurers and reinsurers able to push through price increases after sustained soft market conditions. Suddenly, people found themselves paying more for their cover, and wanted to know why.

Interest in the arcane workings of the market understandably grew.

Coinciding with this increase in public awareness, the industry has been undergoing a growth in regulation. All insurance and financial services organisations in the UK are now (or soon will be) closely monitored, and standards of governance, capability and competence are being driven higher.

External benchmarks are being imposed and companies are having to find ways to satisfy regulatory expectations.

Border difficulties

Such objective measures are crucial, but the difficulty with the reinsurance industry is that it operates across national boundaries, and thus its members are subject to a variety of regulatory structures and regimes.

In a speech given to the International Underwriting Association (IUA)'s biennial conference in London last year, John Tiner, Chief Executive of the UK's Financial Services Authority (FSA), commented: "Regulators around the world recognise the important contribution reinsurers make to the stability of insurance markets. However, there is a very wide variance in the regulatory oversight of the reinsurance industry in different countries.

Here in the UK, reinsurers are required to be fully authorised by the FSA and are regulated in a similar way to mixed writers and insurance companies. This is also the case in the US. In some other countries, reinsurance companies do not fall within the scope of regulation, and in other cases are regulated indirectly through the ceding insurer."

He explained that this "patchy structure" meant that reinsurance market information is "not adequately captured". And even though the International Association of Insurance Supervisors (IAIS) had implemented principles on minimum requirements for reinsurance supervision, these were not mandatory.

He continued: "The IMF/World Bank reviews compliance of a country's regulatory system, with standards promulgated by official bodies such as the IAIS.

The IAIS reinsurance sub-committee is also working on a specific standard of supervision of reinsurers which, if adopted, would drive greater consistency and harmonisation in the approach to regulation and supervision of reinsurers, including technical provisions, investments and liquidity, capital requirements and systems and controls. In addition, the Financial Stability Forum and IAIS has formed a joint task force to bring forward proposals on arrangements for the collection and dissemination of relevant market data and on enhanced disclosure by individual reinsurers. And finally, the EU is working on a fast-track reinsurance directive which will establish common standards among EU member states in the regulation of reinsurance."

Mr Tiner elaborated: "It is clear that greater transparency of data, consistency of regulatory approach and closer collaboration among regulators is central to the management of systemic risk and the avoidance of the Armageddon scenario in this large, complex and pivotal sector in the stability of the global insurance market."

Mr Tiner's Armageddon scenario relates to the concern that an event on the scale of 9/11 could trigger the collapse of the market. But he remained confident that an efficient and profitable market would be well placed to cope with future catastrophes. The recent news that Swiss Re has secured a victory in a US court case limiting its liability for the WTC attacks also helps ease concerns that the industry is living on a knife-edge.

Training and competence are central to the FSA's approach to regulation.

It requires those working within regulated firms to be competent for the work they do, and to remain so. This means that individuals (and, inevitably, their employers) must be aware of changing market conditions and must have in place the processes and routines that allow them to maintain their professional development.

The role of organisations such as the Chartered Insurance Institute (CII) in providing the resources and facilities the market requires cannot be under-estimated. Industry bodies have the broad perspective and wide experience needed to develop solutions that apply to all companies in a given sector.

They are able to scrutinise the regulator's explicit and implicit requirements and devise products and services that answer the specific need.

A recent action by the CII has been the upgrading of its 'insurance ASSESS' facility to include questions pertinent to the London market and Lloyd's.

The questions were created through a close working relationship between the CII and the IUA.

Insurance ASSESS is a component of the CII's competence and learning system, which provides a co-ordinated range of training and assessment tools designed to keep staff up-to-date with regulatory, legislative and market changes. Employers can use insurance ASSESS to measure how well their people understand the technical issues surrounding their roles.

The system is structured to provide each individual with feedback on which areas require particular attention. This means that training and educational activities can be directed so that the potential of each individual is maximised. Full records are maintained within the system to assist with compliance activity, both for the individual user and for the employer organisation.

As the system is maintained and updated online, users can be confident that they are accessing the latest information and genuinely keeping their knowledge up to date.

In October 2004, the CII will add a London market underwriting examination to its hugely successful general insurance qualifications framework, which was unveiled in 2003.

To strengthen further its links with the international insurance community, the CII has announced the development of a London market faculty. This entity will be dedicated to meeting the highly specialised knowledge requirements of the London market. Specifically, it will:

- develop an attractive career proposition for potential recruits to the London market, including on-line tools for smaller businesses to use;

- provide 1,000 places free of charge for students at a new Insurance Centre of Learning for face-to-face tuition and classes;

- send tutors into the workplace for any company with 20 or more students entered into the same CII exam module at no charge; and

- define 'fit for purpose' and competency requirements under FSA regulation for different job roles.

The faculty, which will be chaired by Derek Thornton, President of the Insurance Institute of London, has strong support from the London Market Brokers' Committee (LMBC), Lloyd's, the IUA and the Lloyd's Market Association (LMA).

Commenting on the launch, Mr Thornton said: "Our spread of international business and the specialist classes we broke and underwrite make the London market's training and competence requirements unique. As such, it requires a unique solution: a new faculty of its own. Some 50,000 people are employed both directly and indirectly in the London market. Our hope is that when they need to demonstrate knowledge as part of their competence assessments, each one of them will turn first to the CII. Not just new entrants, but employees in their 30s, 40s, 50s or even 60s will find the London market faculty will help them meet at least part of their competence assessment needs."

Targeted training

The faculty's Centre of Learning will be established in the CII's London training centres in Fenchurch Street and Aldermanbury. The CII's Face-to-Face training programme already includes a number of courses targeted directly at the international insurance and reinsurance community.

Companies operating in this market clearly understand the value of training and qualifications, not only as part of their compliance activity, but also as a means to enhance commercial performance. For example, re/insurance intermediary Heath Lambert is investing heavily in its training programme, as the broker's regional technical and training manager Sally Morgan confirms: "We are committed to training young people to practice in the insurance industry. Over the last five years we have provided additional training resources to provide our candidates the best possible chance of achieving their development goals. This is reflected in the high number of outstanding results in CII examinations this year."

The provision of a sophisticated and comprehensive suite of training and revision courses, compliance aids and benchmark qualifications allows organisations to structure their internal staff development activity so that it suits their purposes and aligns with industry standards. With qualifications such as those administered by the CII near-universally recognised, staff are able to move more easily between employers - a vital consideration in the contemporary working environment.

Aon is an example of a broker that has devised a graduate recruitment programme aligning external qualifications to its internal specifications.

Those entering its 18-month risk management programme experience a wide range of business disciplines via a number of placements. The aim is to help individuals decide which career path they would prefer to take within the company.

The broker links each recruit with a management mentor who offers on-the-job instruction and the benefit of experience and expertise. There is also a requirement to study a series of core modules to help recruits achieve the CII's Diploma in Insurance, the Lloyd's Introductory Test and Advanced Diploma (ACII) of the CII. Study leave is granted where appropriate.

The overall aim is that by the end of the programme, the individual will have made the transition from a bright new graduate to an up-and-coming insurance professional ready to take on a role of responsibility.

Striving for status

It is said that regulation is at its most effective when it is driven by the energy, commitment and desire of those being regulated. Throughout the insurance and reinsurance industry, there is a desire to achieve genuine and recognised professional status, and there is a recognition that this will only happen when the capability and probity of the market is clearly evident. The industry is coming to realise that it is master of its own destiny as far as its standing among consumers and the rest of the business community is concerned.

The availability of training and competence materials and support, and of objective measures of knowledge and achievement, remain an essential element of the progress being made towards professionalism.