Recently, the first "Insurers' Discussion" seminar and the press conference of China's insurance competitiveness ranking were successfully held in Beijing, sponsored by the editorial department of Tsinghua Financial Review of PBC School of Finance, Tsinghua University. The theme of this forum is "Helping the Construction of a Financial Power with High-quality Development of Insurance". Regulators, academia, and practitioners from the insurance industry discussed how the insurance industry can achieve high-quality development. There were more than 100 participants at the scene, which were full of seats and received extensive attention from people from all walks of life. Li Zongjian, Secretary of the Party Committee and Chairman of Junkang Life Insurance, attended the forum and delivered a keynote speech entitled "Thoughts on Corporate Governance and Risk Management".
He said that from the perspective of risk prevention and control system, a sound corporate governance and internal control mechanism is an important guarantee for risk prevention. From the root cause of risk, insurance companies are professional risk managers, but if there is a problem in corporate governance or internal control mechanism, it is likely to be manipulated by a very small number of "insiders" with impure motives, which is likely to cause insurance companies to transform into risk makers and bearers. Insurance companies face a variety of risks in their operation and management, and compared with the risks on the liability side, the risks on the asset side often bring more serious losses once they occur.
Li Zongjian believes that from the perspective of risk prevention, it is necessary to optimize the shareholder structure, give full play to the role of the company's party committee and the "three committees and one layer", establish the concept of combining pre-prevention, in-process control and post-disposal, adhere to the principle of prevention first, disposal supplemented, and try to prevent the occurrence of risks as much as possible, or control risks in the bud. Insurance companies should establish risk identification, assessment and early warning mechanisms; The construction of the "three lines of defense" and internal control mechanism should be strengthened to form a synergy with corporate governance to effectively prevent risks. If there is a major risk, it must be dealt with and resolved decisively, the problem shareholders must be eliminated, the relevant responsible persons should be held accountable, the "root cause" of the disease must be eliminated, and the problem company must return to the track of healthy operation.
The picture shows Li Zongjian sharing
The following is the full text of the guest speech
I would like to thank the organizers for providing this platform for me to have the opportunity to meet old friends, meet new friends, and exchange some of my knowledge and experience about insurance company risk management in the past two years with old friends and new friends.
My theme is "Reflections on Corporate Governance and Risk Management", which mainly focuses on the following four aspects: 1. The relationship between insurance companies and risk management; 2. The important role of corporate governance in risk prevention and control; 3. The interrelationship between the three lines of defense and corporate governance; Fourth, several suggestions for risk prevention of insurance companies. for everyone to discuss.
1. The relationship between insurance companies and risk management
(1) Insurance companies are risk managers and may also become risk makers. Insurance companies are originally professional institutions and risk managers, and their basic function is to help policyholders and insureds prevent, resolve, disperse, and transfer risks, and play the role of economic shock absorbers and social stabilizers. However, due to corporate governance failures, lack of internal control or other reasons, some insurance companies may become risk generators and bearers, and become problem insurance companies or risk disposal institutions. If not properly handled, it may cause social risks, affecting the reputation of the industry and social stability.
(2) The risk faced by an insurance company refers to the uncertainties that may have a negative impact on the company's realization of its business objectives (insurance business and asset management business), and can also be defined as the uncertainty that causes losses and other negative consequences. The risk categories of insurance companies can be divided from different perspectives. From the perspective of the insured, there are property risks, liability risks, credit risks and personal risks, among which personal risks can be further divided into life, old age, sickness, death and disability risks. From the perspective of insurance company's operation, it can be divided into insurance risk (risk related to underwriting business), market risk (risk caused by changes in market factors such as interest rates, exchange rates, stock prices), credit risk (loss caused by counterparty default or failure to perform contractual obligations), business risk (risk related to business operation, expansion, competition), operational risk (loss caused by process, system or human error, including legal risk, etc.), strategic risk (the negative impact of a company's strategic decision-making errors on the company's future development), reputational risk (potential losses due to damage to the company's reputation due to corporate actions or external events) and liquidity risk (the risk of not being able to obtain sufficient funds to meet payment obligations); It can also be divided into insurance risk, investment risk, management risk, and moral hazard; It can also be divided into risks on the liability side and risks on the asset side.
(3) The probability and degree of losses caused by various types of risks to insurance companies are different. In practice, operational risk is a common risk for insurance companies, and legal risk is one of them. Legal risks include, but are not limited to, the following risks: the signed contract may be revoked or invalid in accordance with the law due to violation of laws or administrative regulations; If you are sued or apply for arbitration due to breach of contract, infringement or other reasons, you may be liable for compensation in accordance with the law; Business or management activities that violate laws, regulations, or regulatory provisions may bear criminal or administrative liability in accordance with the law. Due to the company's ordinary employees, especially management personnel, operational mistakes or dereliction of duty, dereliction of duty or even violations of laws and regulations may arise, which may lead to major risks on the liability side and asset side, causing huge losses to the company. Judging from the cases in recent years, the risk on the liability side is usually less harmful than the risk on the asset side, if the former often makes the insurance company "catch a cold", then the latter often makes the insurance company "break the muscles and bones".
2. The important role of corporate governance in risk prevention and control
(1) Corporate governance refers to a series of institutional arrangements for the company to clarify and standardize the responsibility boundaries, performance requirements and decision-making procedures of the "three committees and one layer" and other governance entities on the basis of a certain equity structure in order to improve the effectiveness of operation and management and risk management capabilities. In the operation and risk management of insurance companies, it is necessary to give full play to the two advantages of the party's leadership and corporate governance. The focus of the party committee is to set the direction, manage the overall situation, and ensure implementation; The board of directors is mainly to set strategies, make decisions, and prevent risks; The board of supervisors is mainly responsible for supervision, strict inspection, and promotion of compliance; The senior management focuses on seeking management, grasping efficiency, and strengthening management.
(2) Good corporate governance includes at least 10 aspects or requirements: (1) a clear shareholding structure; (2) sound organizational structure; (3) clear boundaries of responsibility; (4) scientific development strategy; (5) High standards of professional ethics; (6) effective risk management and internal control; (7) a sound information disclosure mechanism; (8) Reasonable incentive and restraint mechanism; (9) good stakeholder protection mechanism; (10) Strong sense of social responsibility. (Corporate Governance Guidelines for Banking and Insurance Institutions, China Banking and Insurance Regulatory Commission, promulgated and implemented on June 2, 2021)
(3) Good corporate governance is an important guarantee for the standardized operation of insurance companies and other financial institutions, and is also a necessary condition for risk prevention and control and risk management. Practice has proved that the major risks of some financial institutions, including insurance companies, are usually closely related to the imperfection or even failure of corporate governance. Analysis of risk institutions such as Anbang Insurance, Henan Village Bank, and Huarong Asset Management shows that the vast majority of them illegally transfer, misappropriate, and embezzle insurance funds through false investment and asset procurement, illegal related party transactions, bank deposits, and deposit pledge guarantees under the condition that the shareholders' meeting, the board of directors, the board of supervisors, and the management fail to perform their duties in a standardized manner, fail to fulfill their prudent management obligations, or even seriously derelict their duties. As a result, the company suffered significant losses of risky assets and insurance funds. If the corporate governance mechanism is sound, and the "three committees and one layer" perform their duties normally, operate in a standardized manner, and make collective decisions, it is unlikely that a small number of people will misappropriate and embezzle insurance funds in violation of regulations, and major decision-making risks on the liability side and the asset side can also be avoided to a large extent.
3. The relationship between the three lines of defense and corporate governance
(1) Banking and insurance institutions generally require the establishment of three lines of defense for operational risk management: the first line of defense includes business and management departments at all levels, which directly undertake the management of operational risks in various fields; The second line of defense includes the lead departments (risk, compliance, legal, etc.) responsible for operational risk management and measurement at all levels, guiding and supervising the operational risk management of the first line of defense; The third line of defense includes internal audit departments at all levels, which supervise and evaluate the performance of the first and second lines of defense and the operation and effectiveness of the operational risk management system, and report to the board of directors. (Measures for the Management of Operational Risk of Banking and Insurance Institutions, promulgated by the State Administration of Financial Supervision and Administration on December 27, 2023, and implemented as of July 1, 2024)
(2) A good governance structure is the foundation of operational risk management and the guarantee for the three lines of defense to function. According to the above-mentioned Administrative Measures issued by the financial regulatory authorities, the board of directors of a banking and insurance institution shall regard operational risk as one of the main risks of the institution and assume the ultimate responsibility for operational risk management. The board of supervisors (the board of supervisors) shall assume the supervision responsibility for operational risk management, be responsible for supervising and inspecting the performance of duties and responsibilities of the board of directors and senior management, and promptly supervise and rectify the situation; Senior management should assume responsibility for the implementation of operational risk management.
(3) Internal control measures are an important means of operational risk management. Internal control measures mainly include: clarifying the division of responsibilities between departments; Strengthen the management of various business authorizations and information system permissions; Establish an audit system for isolation, avoidance, rotation and off-the-job of important business departments and key positions; Strengthen employee behavior management, focusing on employee behavior in key positions; Establish incentive and restraint mechanisms for operational risk management, and so on.
4. Risk Management of Insurance Companies: Concepts, Principles and Recommendations
(1) The enlightenment of the three Bian Que brothers: the significance of different prevention and control concepts
According to legend, during the Spring and Autumn Period and the Warring States Period, Wei Wenhou once asked Bian Que, the most famous doctor at that time: Your three brothers are all good at medical skills, who has the highest medical skills? Bian Que replied: We all have our own priorities and strengths. In terms of the sophistication of medical skills, the eldest brother is the best, the second brother is second, and I am the third. Wei Wenhou asked puzzledly: You are a famous miracle doctor in the world, and you are much more famous than them, why do you think you are inferior to them? Bian Que explained: The eldest brother's treatment is before the onset of the disease, because ordinary people do not know that he can eradicate the cause in advance, so his fame cannot be spread; The second brother's treatment was at the beginning of the disease, and most people thought that he could only treat minor diseases, so his fame only reached that of his hometown; When my illness was severe, people saw that I could be cured through major surgery, so they thought that my medical skills were excellent, and my reputation spread throughout the country. In terms of current language, the eldest brother is good at "pre-event prevention and control" of pre-illness treatment, the second brother is good at "in-process control" of initial illness and minor treatment, and Bian Que himself is good at "post-event control" of major illness.
This legend may not be completely in line with historical facts, but the three concepts and methods of prevention, control and treatment of diseases are very enlightening for us to discuss the ways of risk prevention and resolution of insurance companies.
To prevent and resolve the risks of insurance companies, we should also focus on the "root causes" of risks or problems, just like disease prevention and treatment, and take different countermeasures according to the different stages of risk generation. First of all, it is necessary to give priority to pre-emptive preventive measures before the disease is treated, that is, to strengthen the body through the "health management" method, establish a protective barrier, and prevent and avoid the occurrence of various risks to the greatest extent; Secondly, attention should be paid to the control methods of minor diseases and small treatments, that is, in the early stage of risk exposure, or in the embryonic stage of small risks, effective measures should be taken in time to prevent the gradual development and control the risks to a minimum; Third, it is necessary to adhere to the principle of treating serious illnesses and treating them, and once it is found that there are major risks or serious problems in insurance companies, they must resolutely adopt effective "treatment" methods, and even eliminate the root cause of the disease through treatment methods such as bone scraping and healing, detoxification and tumor reduction, so that the "sick" company can be reborn and restore its health.
(2) Adhere to the principle of prevention first, supplemented by disposal
From a practical point of view, most insurance companies are basically able to avoid major risks through various risk prevention and management measures, or take timely measures to "stop loss" when the risk is relatively small; However, there are also some insurance companies, because they do not eliminate the cause or root cause of the disease in time, so they are often discovered and mitigated and dealt with when the risk is fully exposed or extraordinarily exposed. In view of this, we advocate that the risks faced by insurance companies should adhere to the principle of prevention first, supplemented by disposal. It goes without saying that preventing risks before they occur can minimize or reduce losses, and waiting until the risks have been exposed beyond normal or have already incurred huge losses to deal with them will have an immeasurable negative impact on the company and the industry, and at the same time, it will also pay huge costs and costs.
(3) Some suggestions worth considering
First, it is necessary to pay attention to the "health" status of the insurance company, and to "diagnose" and "treat" problems in a timely manner.
Second, insurance companies dealing with problems should adhere to the principle of "treating the sick and saving the department".
Third, it is necessary to start by optimizing the shareholder structure and improving the corporate governance mechanism.
Fourth, it is necessary to give full play to the role of "three committees and one layer" and establish a corporate governance mechanism with clear equity, sound organization, clear responsibilities and efficient operation.
Fifth, on the basis of sound corporate governance, we should give full play to the role of the three lines of defense and the internal control mechanism to form a joint force of risk prevention and risk management.
Sixth, it is necessary to strengthen internal control, realize the organic combination of corporate governance and internal control, and effectively plug risk loopholes. Finally, two sentences are summed up: the first sentence is called "the supervision at the higher level is too far, the supervision at the same level is too soft, and the supervision at the lower level is too difficult", and the second sentence is called "the problem lies in the first three rows, and the root is still on the rostrum". The occurrence of major risks in insurance companies and financial institutions is often caused by serious dereliction of duty and violations of laws and regulations by the company's senior management, especially the top leaders or actual controllers. In this sense, the establishment of a good corporate governance structure and operation mechanism is an important guarantee and basic condition for risk prevention and control and risk management. Therefore, risk prevention should start from corporate governance. Thank you!
About Tsinghua Financial Review
Tsinghua Financial Review is one of the first academic journals recognized by the National Press and Publication Administration, and is also the core journal of the Chinese Academy of Social Sciences Evaluation. Since its inception on November 5, 2013, it has published 127 issues, published more than 3,500 articles, gathered nearly 3,000 experts and scholars, and held more than 200 activities on WeChat. At the same time, it has won many honorary titles such as "Good Articles for Journal Theme Publicity", "Excellent Cover Design and Layout Design" and "Think Tank Journal Group" issued by the Propaganda Department of the CPC Central Committee, the China Periodicals Association and the Chinese Academy of Sciences.
Intern Editor丨Qin Wanqi
Editor-in-charge丨Xu Chenhui, Lan Yinfan
Preliminary trial丨Xu Lanying
Final Review丨Zhang Wei