Regulation and Compliance
Why insurance is regulated
Insurance is regulated to protect policyholders, ensure solvency, promote fair market conduct, and support market confidence. Candidates should understand the three pillars: prudential regulation (capital, solvency, reserves, governance), market conduct regulation (fair treatment, disclosure, complaints, claims handling), and financial crime compliance (anti-money-laundering, sanctions, fraud).
Key regulatory concepts
Know the role of the supervisor, licensing of insurers, brokers, and agents, and the requirement for approved persons and continuing professional development. Understand solvency capital requirements, technical provisions, and the principle that assets must be sufficient and appropriately matched to liabilities. Know treating customers fairly outcomes: culture, products, clear information, suitable advice, and no post-sale barriers.
Compliance in practice
Compliance covers data protection, outsourcing, complaints handling, and record keeping. Financial crime controls include customer due diligence, enhanced due diligence for higher-risk customers, ongoing monitoring, suspicious activity reporting, and sanctions screening. A suspicious activity report should be made promptly and without tipping off the customer.
Traps and worked example
Examiners test the distinction between treating customers fairly and merely complying with disclosure rules: disclosure alone does not satisfy fairness. Another trap is confusing the regulator's objectives with the firm's obligations; a firm must have its own controls and cannot outsource responsibility. Worked example: a broker learns a client is structuring premiums through third parties to avoid scrutiny. Rule of thumb: if a transaction has no apparent economic purpose, escalate and file a suspicious activity report; do not continue the transaction to preserve the relationship.