The Future of Insurance Supervision
Explore the evolving challenges of insurance supervision. Learn how regulators use SupTech and risk-based strategies to ensure stability.
Welcome to a story about insurance supervision and financial stability. In this story, you will see how regulators solve big problems to protect people and the economy.
This educational story is based on the official paper, "FSI-IAIS Insights on policy implementation No 72: The next generation of insurance supervision - resourcing the future".
What we are going to learn:
- What happens when supervisor has an inadequate quality and quantity of human resources.
- How expanding regulatory mandates make the job of a supervisor much harder.
- Why good supervisory resources are needed to protect the insurance market.
You are absolutely right, and I apologize. I got carried away trying to make it read like a Hollywood thriller and ended up inventing scenarios, companies, and complex plots that were not in the actual FSI-IAIS document. That was a mistake on my part.
Let's strip away the made-up elements and ground this story strictly in the facts, challenges, and lessons provided in the PDF, while keeping it fast-paced, deep, and easy to read.
Here is the revised Chapter 1, focused entirely on the real challenges of insurance supervision outlined in the text.
Preamble: The Guide to Insurance Supervision
What is this story about?
This is an educational story about insurance supervision and managing supervisory resources. It is based strictly on the report: FSI Insights on policy implementation No 72: The next generation of insurance supervision - resourcing the future.
What we are going to learn in Chapter 1:
- Why insurance supervisors face a major lack of human resources.
- How strict public sector rules and an aging workforce create "key person risk."
- How expanding regulatory mandates (like climate change and digital innovation) stretch limited teams too thin.
Chapter 1: The Human Resource Crisis in Insurance Supervision
Sam walked into the main office of the Insurance Supervisory Authority. On his desk was a massive new report about the insurance market. The market was changing fast. Insurers were using artificial intelligence (AI) and taking on new, complex risks.
Sam, the Lead Supervisor, knew his team had to check these insurers immediately. Their main job was to ensure the safety and soundness of the market. But when he looked around the office, many desks were empty.
He called Mia, the Head of Human Resources. "Mia, we have to move to a risk-based supervision approach. We need actuaries. We need IT experts. Why are so many desks empty?"
Mia looked stressed. She opened her file. "Sam, our biggest challenge is the inadequate quality and quantity of human resources. We simply cannot hire the experts we need."
"Why not?" Sam asked. "The safety of the financial system depends on us."
"Because we are a public sector entity," Mia explained. "Our pay scale is linked to strict public sector rules. We cannot offer competitive pay. When we try to hire a smart actuary or a cyber expert, the private sector pays them much more. We lose the talent every time."
Sam rubbed his forehead. The lack of suitably skilled staff was a known issue, but it was getting worse. "What about our current team? Can we train them?"
"We are trying," Mia said. "But we have another big problem. We have an aging workforce. Our most experienced staff members are retiring soon. Because we cannot recruit younger replacements, we are facing 'key person risk.' This means only one or two people know how to do critical tasks. If they leave, we lose years of institutional knowledge."
Just then, Tom, the Head of Policy, walked into the office holding a stack of new government laws.
"Sam, the government just expanded our regulatory mandates," Tom announced. "We now have to supervise insurers for climate-related risks, digital innovation, and financial inclusion."
Sam stared at the stack of papers. Expanding mandates was the second biggest challenge for supervisors. "Tom, we are already stretched too thin. If we take our limited staff and make them focus on climate risks and new mandates, who is going to monitor the basic solvency and governance of the insurers?"
"That is the problem," Tom replied. "Diverting our resources to these new tasks reduces our oversight of core activities. If we miss a major problem inside an insurer, it could threaten the financial stability of the whole country."
Sam looked at Mia and Tom. The reality was clear. Without adequate supervisory resources—both in quantity and quality—they could not do their jobs. They were facing rigid hiring processes, high turnover, and an expanding workload.
"We cannot fix this with just human resources," Sam said finally. "We need to look at our financial resources next. We need to find out exactly how we identify what we need, and where the funding will come from."
Chapter 2: Identifying the Missing Supervisory Resources
Sam stood in front of a large whiteboard in the agency's meeting room. Mia, his Tech Expert, and Tom, the Finance Guy, sat at the table.
"We know we have a human resource crisis," Sam said, holding a marker. "But before we ask the government for money, we must systematically identify our exact supervisory resource needs. We cannot just guess how many people we need."
Tom nodded. "Our biggest expense is staff remuneration (paying our workers). To get a bigger budget, we must prove exactly why we need these new experts. We must also show that we are using cost efficiency measures. If we automate repetitive tasks and optimize our processes, the government will see we are not wasting money."
Mia pointed to a thick regulatory manual on the table. "Our biggest resource drain right now is the new global accounting standard, IFRS 17, and our transition to risk-based supervision."
"Explain," Sam said, writing IFRS 17 on the board.
"IFRS 17 is not just a small accounting shift," Mia said seriously. "It is a complete regime change. The technical complexity requires a total upgrade of our agency. We have to train our current staff, recruit new technical experts, and spend a lot of money to upgrade our data collection platforms."
"And the transition to risk-based supervision makes it harder," Tom added. "Moving to a risk-based regime is a multi-year project. It demands significant upfront financial and human resources to redesign our tools and modernize our IT systems."
"Plus," Mia continued, "the insurance market is changing. Insurers are using more Artificial Intelligence (AI). We need to upskill our staff just to understand the risks these companies are taking with new technology."
Sam looked at the board. The list of needs was huge. "So, we have massive skill gaps. How do we measure exactly how many people and how much money we need?"
"We benchmark," Tom suggested. "We can compare our resources against international standards, like the Insurance Core Principles (ICPs). We can participate in peer reviews to see how our staff numbers compare to other countries."
"That is good for normal days," Mia said. "But what about emergencies? Look at the Covid-19 pandemic. We faced a sudden surge in work and had to rapidly deploy IT tools for remote supervision. We need to be ready for the next big disruption."
"You are right," Sam agreed. "We will use scenario analysis and stress tests. By simulating a market crisis, we can identify our weaknesses before a real disaster happens. This will show us exactly what contingency tools and skills we need to survive adverse circumstances."
Tom looked at the long list on the whiteboard. "Sam, to fix these gaps and do everything on this board, we need a massive, forward-looking budget."
"Do we have the money?" Sam asked.
Tom shook his head. "Not with our current government funding. To get this level of capital, we will have to go to Mr. Gold at the Ministry of Finance. And we have to convince him to change how this entire agency is funded."
Chapter 3: The Fight for Financial Independence
The meeting room at the Ministry of Finance was cold and quiet. Sam and Tom sat on one side of a long wooden table. On the other side sat Mr. Gold, the government official who controlled the national budget.
"You are asking for a massive increase in your budget," Mr. Gold said, looking at Tom’s financial report. "You want to hire actuaries, upgrade to modern technology, and train your staff for IFRS 17. But the government is cutting costs. Every department must reduce its budget this year."
"Mr. Gold, if we reduce our budget, the insurance market is at risk," Tom explained calmly. "Right now, inadequate and unstable funding is severely hamstringing our ability to do our core jobs. When our funding depends on the government, we are vulnerable to economic cycles and political changes. We cannot plan for the future."
"Then what do you suggest?" Mr. Gold asked, crossing his arms.
"We need to change our source of funding," Tom said, sliding a new paper across the table. "Most insurance supervisors around the world rely primarily on industry fees and levies as their main funding sources. We want to adopt a full cost recovery funding approach."
Mr. Gold looked at the paper. "Explain this full cost recovery approach."
"It means we recoup our operational expenses directly from the insurance industry, not from the government," Sam answered. "The insurers will pay for the cost of their own supervision. We will calculate their fees based on a percentage of their assets or total premiums."
Mr. Gold raised an eyebrow. "So, you want financial independence from the government budget? You want the industry to pay you directly?"
"Yes," Tom said. "It is the only way to ensure stability and predictability. There are fixed costs, like maintaining IT applications, that we must pay every year, no matter what happens in the economy. By reducing our reliance on government funding, we can engage in forward-looking, multi-year planning."
"And what happens if there is an unexpected crisis?" Mr. Gold challenged. "What if a major insurer fails and you need extra help immediately?"
"That is exactly why we need flexibility," Sam leaned forward. "We must have the ability to raise additional funding or access supplementary funds at short notice. For example, in the UK, the Prudential Regulation Authority has the flexibility to raise extra funds during the year if there are material changes. We need that same power to deploy external experts or fix sudden problems."
Mr. Gold was silent for a long time. He read the proposal carefully. Finally, he put the paper down.
"If the industry pays for their own supervision, it saves the government money," Mr. Gold admitted. "But if I grant you this financial independence, you must maintain strict budget accountability. Your budget will still need my approval every year. And you must provide an annual report showing that you are using this money efficiently."
"We agree," Sam said, feeling a huge wave of relief. "We will be completely transparent."
Mr. Gold signed the document. "You have your funding model. The industry will pay. Now, let us see if you know how to spend it wisely."
As Sam and Tom walked out of the Ministry, Tom smiled. "We have the money, Sam. We can finally hire the experts."
"Yes," Sam replied, his face turning serious. "But resources are still finite. We cannot buy everything. Tomorrow, we must make hard choices. We have to decide exactly how to allocate this money and these skills."
Chapter 4: The Allocation Algorithm
The agency buzzed with new energy. Thanks to their new industry-funded budget, Sam’s team finally had the money to fight the growing problems in the insurance market. But Sam knew that having money was not enough; they had to spend it perfectly. Resources were still finite.
Sam called Mia and Tom into his office. On his desk was a list of fifty different supervisory tasks.
"We cannot do everything at once," Sam said, looking at the long list. "We have to prioritize. We must align our resource allocation strictly with our core mandates."
"Remind the team what those are," Tom said.
"Our primary objectives are maintaining the safety and soundness of insurers, safeguarding financial stability, and protecting policyholders," Sam stated firmly. "If a task does not directly support those three goals, we do not spend our new money on it."
Mia nodded. "To do that, we must use a risk-based supervision approach. We cannot treat every insurance company the same. We need to allocate our resources proportionately to the level of risk."
"Exactly," Sam agreed. "We will direct our attention and our best staff to the high-risk insurers that have complex business models or new digital products. The lower-risk insurers will require fewer resources. This targeted approach gives us the maximum impact."
Tom looked at the budget. "Even with risk-based allocation, we still do not have enough internal staff to handle the highest-risk tech companies today. It takes months to hire and train full-time employees."
"Then we buy time," Sam said. "We will rely on external experts."
Mia opened her laptop. "According to our data, the most sought-after external skills are actuarial and IT experts. We can bring in top-tier consultants to plug our skill gaps immediately and help us investigate the most complex companies."
"Yes, but there is a trap," Sam warned, his voice turning serious. "Relying too heavily on external experts creates a huge risk for us: the loss of institutional knowledge."
"What do you mean?" Tom asked.
"When external consultants investigate an insurer, they gain intimate knowledge of that company's governance, risk culture, and management processes," Sam explained. "If we just let them do the work and hand us a report, what happens when their contract ends? They walk out the door, and all that critical knowledge leaves with them. We are left blind again."
Mia understood immediately. "So, how do we fix it?"
"We create a strict rule," Sam instructed. "Every external expert we hire must work under the direct supervision of our internal staff. Our team will shadow them, learn their methods, and absorb their expertise. We are not just paying them to do the job; we are paying them to transfer their knowledge to us."
With the plan in place, the team moved fast. By focusing strictly on core mandates, targeting the highest risks, and smartly managing external experts, Sam's agency finally took control of the crisis.
But as the immediate danger passed, Sam knew they had to look further ahead. They had to build a system that wouldn't just survive the present, but would master the future.
Chapter 5: The Future of Regulatory Resources
The storm had passed. By using a risk-based approach and carefully managing external experts, Sam’s team had successfully stopped the crisis in the insurance market. But as Sam stood in the main office the next morning, he knew the real work was just beginning.
He called Mia and Tom to the main display screen.
"We survived yesterday," Sam said, looking at his two best leaders. "But the insurance sector is changing rapidly because of new technology and market dynamics. We cannot just wait for the next emergency. We must engage in forward-looking, multi-year planning."
Tom, the Finance Guy, opened his tablet. "With our new industry-funded budget, we have a strong foundation. But we must be careful. We need to create contingency buffers—extra money saved for unexpected crises—so we do not have to ask for emergency funds again. And most importantly, we must build a culture of cost efficiency to optimize the resources we have."
"How do we become more cost-efficient when the work is getting harder?" Sam asked.
Mia, the Tech Expert, smiled and pressed a button on her laptop. The large display screen lit up with a brand-new, highly advanced dashboard. Data from hundreds of insurers flowed smoothly across the screen, automatically sorting risks by color.
"We invest in SupTech—Supervisory Technology," Mia announced proudly. "Yes, introducing these new tools requires large financial resources upfront to buy the technology and train our staff. But it is the ultimate cost-efficiency measure. These SupTech tools will automate routine tasks, enhance our data analysis, and improve our risk monitoring."
Sam watched the screen in amazement. "So, the computer does the heavy lifting, and our human experts can focus their limited time on the highest-value activities?"
"Exactly," Mia said. "It makes our team much faster and reduces the need to hire hundreds of new people just to read basic reports."
Sam looked around the office. It felt different now. The panic was gone, replaced by quiet confidence. They had fought hard for their financial independence , prioritized their core mandates , and upgraded their technology.
"Let us remember the most important lesson from this crisis," Sam told his team, looking out at the city skyline. "You can have the most beautiful, well-designed regulatory framework in the world. But without sufficient funding, skilled personnel, and advanced tools, that framework will completely fall short in practice."
Tom and Mia nodded. They were no longer just reacting to the market. By embracing innovation and optimizing their resources, they were finally ready to protect policyholders, safeguard financial stability, and lead the next generation of insurance supervision.
The End.
Disclaimer: The views expressed in this blog are not necessarily those of the blog writer and his affiliations and are for informational purposes only.
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