Towards best in class insurance corporate governance

Insurance companies with weak corporate governance cultures are missing out on opportunities. They are also at increased risk of making errors that could have serious long-term negative consequences. ILA is committed to promoting best practice across the insurance sector.

 

Towards best in class insurance corporate governance

 

As well as adding value for customers, investors and shareholders, strong corporate governance standards have become a necessity across the business world. Luxembourg’s insurance companies have embraced this challenge over the last decade. Training and conferences on this topic are planned in the coming months through ILA, the Luxembourg directors’ association.

It gives comfort to clients when they know that their retirements and assets are insured by well governed businesses. Additionally this boosts the sustainably of finance businesses and the financial system. This latter motivation drove the post global financial crisis regulatory activism, and increasingly professionals see the boost quality corporate governance brings customers and shareholders. 

"I would like to invite all insurance and reinsurance directors to join ILA to help build an industry with best-in-class corporate governance."

 

Monitoring risks and opportunities

 

At least two fully independent directors are required on the boards of all EU “public interest entities”, including insurance companies. This follows the so-called Barnier directive on the audit profession which was transcribed into the law of 23rdJuly 2016 in Luxembourg. These are challenging roles given the highly technical nature of the insurance business. Understanding the full implications of Solvency II requirements, knowledge of how actuarial calculations are made, awareness of the different types of insurance risk, and being across the details of compliance challenges requires these non-executive directors to have extensive experience of the insurance industry. Like their executive peers, independent board members have to be authorised by the Commissariat aux assurances, the Luxembourg regulator of the insurance and reinsurance sector.

When suitably equipped, boards are better able to notice both upside and downside risks as they work in partnership with executive management teams. Detailed board work is organised through sub-committees looking at the audit process, risk, compliance, and nomination and compensation, with directors of larger firms also considering strategy. Directors work with external experts to study the complexities of each challenge in depth. 

 

Knowledge and culture

 

Board work often requires a different mind-set than for executive roles. While CEOs are often praised for their expansionist vision and entrepreneurship, directors need these qualities too but tempered with a willingness to challenge key decisions in depth. This transition can be a challenge as directors often had successful business management careers themselves. Joining ILA (Institute Luxembourgeoise des Administrateurs) helps. It gives access to an extensive fund of knowledge about general and industry-specific corporate governance best practice. There are training workshops, conferences, a library of publications, and ample networking opportunities. These enable each member to acquire the technical and cultural awareness they need to perform their corporate governance duties to the highest level. 

 

Targetted training planned

 

For example, on 11thJune there will be a breakfast meeting discussing a range of governance topics in the insurance sector. Based on feedback from this meeting the ILA Insurance Commission will organise a longer conference where some of these themes will be developed further. We will listen closely to members regarding the planning of this event. The diverse nature of the insurance and reinsurance industry in Luxembourg, plus the range of experience of each individual presents a challenge when setting the agenda. With ILA now being headed by the lawyer and insurance specialist Carine Feipel, the institute is firmly behind this initiative.

Subjects of more general interest are also covered in the dozens of events and courses organised by ILA each year. The role of the chair, the meaning of director independence, ESG, the directors’ role in a multinational and more have been discussed in recent months. As well there is are “boot camps” which provide the expert information on corporate governance basics. Not to forget the ample networking opportunities. 

To give more detail, ILA has a burgeoning library of publications. For example, the Insurance Commission is currently working on a revision of the “Duties and Responsibilities of Directors of Luxembourg Insurance Companies – A Practical Guide”.

Welcomed by regulators

European and global regulators increasingly understand the diverse benefits of a healthy corporate governance culture, and the CAA is no exception. Since it was founded eight years ago, the ILA Insurance Commission has worked well with the local regulator and looks forward to deepening this relationship further. 

ILA is the institute for all corporate governance professionals. Asset management and banking may first among equals, but this is also the place for directors of insurance firms, startups, manufacturing companies, not-for-profits and more. I would like to invite all insurance and reinsurance directors to join us to help build an industry with best-in-class corporate governance.

Jean-Michel Pacaud,

EY Luxembourg partner and Insurance leader,

Chair of the ILA Insurance Commission