2015年-FSB全球金融稳定委员会_FSB_4页_224kb

FSB-IAIS 2015 Workshop on Compensation Practices in the Insurance Sector Summary

1. Core Content

The Financial Stability Board (FSB) and the International Association of Insurance Supervisors (IAIS) jointly organised a workshop on 12 May 2015, focusing on compensation practices in the insurance sector. This was the first such workshop, following a similar event for global systemically important banks (G-SIBs) held in April 2015. The objective was to explore the implementation of the FSB Principles and Standards for Sound Compensation Practices (P&S) within the insurance industry and to facilitate discussions on challenges and experiences.

The workshop highlighted the importance of aligning compensation with prudent risk-taking and fostering a sound risk culture. It also addressed the differences between the insurance and banking sectors in terms of compensation structures, risk management approaches, and the motivations of employees.

2. Main Points and Key Insights

Implementation of FSB Principles and Standards

• The FSB P&S, originally developed for the banking sector, are also applicable to the insurance industry, although with some differences.
• Compensation alignment with risk is a common practice in the insurance sector.
• National regulatory requirements vary, making it difficult for parent companies to implement a unified compensation policy across jurisdictions.
• Insurance compensation structures are generally more structured and less discretionary than in banking, with lower pay and variable compensation.
• The longer-term nature of insurance products and business models leads to fewer material risk takers (MRTs) and less use of malus or clawback mechanisms.

Objectives of Compensation Policies

• Compensation policies aim to support sound risk management and internal controls.
• They are designed to align with the firm's long-term strategy and risk management horizon.
• Setting appropriate targets, especially in areas like customer satisfaction, is challenging due to the long-term nature of insurance products.
• Pension benefits are seen as a potential component of compensation to bring more stability and consistency across jurisdictions.

Attraction and Retention of Talent

• Insurers face challenges in attracting and retaining skilled staff due to competition from non-financial sectors.
• These sectors often offer higher pay and fewer regulatory constraints.
• Insurers need to broaden their recruitment base to adapt to a changing competitive landscape.

Role of Stakeholders

• Institutional investors and proxy holders often prefer simple, formulaic compensation structures for easier oversight.
• However, insurers require flexibility to reflect performance differences.

3. Governance and Risk Culture

Board and Risk Management Involvement

• Boards, especially independent directors, the Chief Risk Officer (CRO), and risk management functions, are increasingly involved in compensation policy design and control.
• Risk and remuneration sub-committees often have synchronized agendas and overlapping memberships.
• Many boards engage independent remuneration consultants to advise on compensation matters.

Risk Management Integration

• Effective risk management is central to compensation design.
• Compensation should be integrated within the broader risk management framework.
• Risk-adjusted measures are not always audited, and small adjustments can have significant impacts.

Alignment with Prudent Risk Behaviors

• A two-step process is commonly used to align compensation with risk behavior: evaluating output (e.g., profit, growth) and qualitative aspects (e.g., risk created, conduct, reputation).
• Some insurers use a 'risk modifier' approach to adjust compensation based on both material risk outcomes and qualitative performance indicators.

Monitoring and Control

• A few insurers have developed verification processes to assess the effectiveness of compensation arrangements.
• CROs and risk management functions review or "back-test" compensation plans and identify potential 'compensation risks' that may incentivize excessive risk-taking.
• Risk management functions also target 'hot spots' (e.g., growing business lines or third-party distributors) to evaluate the impact of compensation practices.

Behavioral Impact and Clawbacks

• The "tone at the top" is a powerful tool for influencing employee behavior.
• Compensation can also be used as a tool to impact behavior, though ex post adjustments are considered more effective than ex ante ones.
• Clawback clauses are common but are viewed as more moral than legal in nature, due to challenges in enforceability and limited evidence of their use.

4. Conclusion

The workshop provided valuable insights into the unique challenges and practices of compensation in the insurance sector. It underscored the need for a balanced approach that integrates risk management with compensation design, while also considering the long-term nature of insurance business and the importance of attracting and retaining talent. The findings will be incorporated into the next FSB progress report, to be published before the G20 Summit in November 2015.