PRA raises “deep concern” about corporate culture in Dear CEO letter to insurance firms

6 November 2019: The Prudential Regulation Authority has issued a letter to the Chief Executives of general insurance firms, setting out feedback from its supervision activities, as well as its priorities for the year ahead.

The letter, which was distributed on 5 November 2019, sets out the following as key areas of focus:

• Reserve adequacy and associated reserving governance and controls in light of risk developments.
• The extent to which firms are demonstrating discipline in underwriting strategies remediation and controls.
• Emerging risk trends and an understanding of a firms’ exposure management practices.
• Firms’ responses to the FCA’s pricing practices review.
• Review of culture within firms – ensure they are fostering a culture where staff are able to speak up and raise concerns – with effective support systems in place.

This final point, on culture, will be of particular interest to the industry, which has recently seen a slew of unfavourable media attention around antiquated behaviours within their firms. The PRA comments that “recent public reports relating to sexual harassment and bullying within the London market are of deep concern” adding that “it is clear that some firms have more work to do to improve aspects of corporate culture and individual behaviour.”

Culture cuts to the heart of conduct, both financial and non-financial. We have often heard it suggested that employee activity that may technically fall under the umbrella of an HR breach, could be indicative of a willing to commit wrongdoing in other areas of the business. This point has not gone unnoticed by Executive Director of Insurance Supervision, Anna Sweeney, who commented in June that instances of non-financial misconduct could speak to personal integrity and may have implications for the PRA’s view of the fitness and propriety of individuals under the Senior Managers and Certification Regime. 

The Dear CEO letter adds that, beyond those issues that have received media attention, there is a broader issue at play: are firms promoting a culture where staff feel able to speak up about poor practices or unidentified risks within their organisations? It reminds boards that they have a responsibility for articulating and maintaining a culture of risk awareness and management. It urges firms to implement channels and mechanisms, both formal (whistleblowing) and informal, that will be useful to support key function holders and allow board members to understand their views and perspectives 

The PRA notes that it is working closely with the Financial Conduct Authority to examine inappropriate behaviour within firms. Moving forward, the PRA will be engaging in discussions with firms, their boards and their management teams to understand how firms are addressing the above list of priorities.