The role and effectiveness of audit committees in general insurance companies

Abstract

Purpose: The objectives of this research are threefold: to evaluate the Audit Committee (AC) composition and powers within an insurance company; to analyse the AC’s relationship with the Board of Directors and to attain an understanding of the AC’s communication with the external auditor. Design: An in-depth qualitative study was carried out to achieve the research objectives. For this purpose, 18 semi-structured interviews were carried out with 6 AC chairpersons, 6 board members, 5 external auditors of general insurance companies and the regulator, to obtain their views on the role and effectiveness of ACs. Findings: The findings of the research indicate that the overall effectiveness of ACs in local insurance companies is of a satisfactory level. Most of the interview survey findings were found to be consistent with the literature presented in chapter two. Locally, only listed companies are legally required to appoint an AC. However, all insurers that have been interviewed have an AC, despite the fact that this is not mandatory. Moreover, the interviewees commented intensively on the newest insurance regulation; Solvency II. The study revealed that the opinions of four sample groups were similar in most of the aspects of AC practices and feel that the adoption of new insurance law means that the sector is moving on to a level of enhanced corporate governance. Conclusions: This study has demonstrated that the AC fulfils an embedded role in substantiating business authenticity, hence allowing access to the resources necessary to sustain and develop business activity. The display of high standards of corporate governance in local general insurance companies enacted from this study exhibits that the presence or absence of an AC may thus have a deep effect on an entity's state. Value: It is hoped that future researchers will be able to look into the problems underlined by this study, as well as extend the paths that this research has opened up. Particular note may be taken to the following recommendations: (i) ensuring AC independence, (ii) having proper reporting relationships between the AC and other board members, (iii) having a strong internal audit function reporting directly to the AC and (iv) establishing an AC even if not mandatory by law.