On-site inspections help the supervisor to identify strengths and weaknesses within an insurer, and to assess and analyse the risks to which an insurer and its customers are exposed.

On-site inspections may supplement the analysis from off-site monitoring and provide the supervisor with the opportunity to verify information it has received. On-site inspection may also help detect problems that may not be apparent through off-site monitoring. It is important that on-site inspections are coordinated with off-site monitoring to increase efficiency and avoid duplication of work.

On-site inspections should be tailored to the particular insurer and its risks. However, an on-site inspection work programme should remain flexible since new priorities might arise.

The on-site inspection work programme should take account of the insurer’s distribution model, the nature, size and profile of its customer base and its relative importance in the market. On-site inspections should be more frequent and more in- depth for insurers which are in a difficult financial position or where there is concern that their business practices pose a high risk of negative customer outcomes.

The supervisor may use independent experts (see ICP 2 Supervisor) to conduct part of an on-site inspection, for instance when additional resources or specific expertise is needed.

The supervisor can conduct on-site inspections on either a broad or targeted basis. The purpose of a broad on-site inspection is to assess the overall condition, activities and risk-profile of the insurer. A targeted on-site inspection is focused on a specific area or areas of an insurer, such as a particular key activity or process. Targeted on-site inspections can also be carried out across a number of insurers based on a specific theme, activity or risk (sometimes called "thematic reviews"). Targeted on-site inspections can be very effective in focusing supervisory resources quickly on those areas requiring immediate attention. If a targeted on-site inspection leads to other areas of supervisory concern, the supervisor may determine that a broad on-site inspection is necessary.

Advance notice is normally given to the insurer before the supervisor conducts an on-site inspection so that both parties may plan accordingly. However, the supervisor may decide not to provide advance notice in certain circumstances.

Examples of ways in which this Standard and its corresponding guidance can be pursued include the following [see text in Annex].

The supervisor should provide appropriate feedback in a timely manner to the insurer during the ongoing supervisory review process. The supervisor should issue in writing the findings of the review and the actions required. In many circumstances, the supervisor’s initial action will be to discuss the issue with the insurer, which may resolve the issue and require no further action. However some issues may require preventive or corrective measures, and in some cases imposing sanctions (see ICP 10 Preventive Measures, Corrective Measures and Sanctions).

Whether and how the insurer has subsequently addressed issues identified by the supervisor should be considered in the evaluation of the insurer and should be factored into the ongoing supervisory plan.

• reviewing and analysing the minutes of the Board and its committees;
• examining communications provided by the auditors to the Board and/or the Audit Committee, such as the auditors’ reports;
• analysing information obtained from and/or received through direct engagement with the external auditor on substantial insights into the insurer’s corporate governance framework, control environment, and financial reporting;
• evaluating the suitability of significant owners by analysing the ownership structure and sources of finance/funding;
• evaluating the independence of the Board Members, the suitability of the Board Members, Senior Management and Key Persons in Control Functions, their effectiveness, and their ability to acknowledge improvement needs and correct mistakes (especially after such needs or mistakes have been identified by the insurer, its auditors, or the supervisor and after changes of management and in the Board);
• testing the insurer's internal policies, processes and controls in order to assess compliance with regulations and/or adequacy of these in light of the insurer's risk profile;
• testing the accounting procedures in order to assess accuracy of the financial and statistical information periodically sent to the supervisor and its compliance with the regulations; and
• evaluating the organisational structure and the management of the insurer.

• analysing business lines, the type of products offered, policyholders and location of business;
• analysing the distribution model(s) used;
• meeting with the management to get information and a deeper understanding about current and future business plans;
• analysing material contracts;
• analysing the sales and marketing policies of the insurer, in particular, policy conditions and remuneration paid to the intermediaries; and
• evaluating the reinsurance cover and its security. In particular, the reinsurance cover should be appropriate with regard to the financial means of the insurer and the risks it covers.

• analysing organisational charts, the group structures and the intragroup links;
• analysing the relationships with major investors and among branches and subsidiaries;
• analysing intragroup transactions, fees and other arrangements, including identifying instances of cross-subsidisation of businesses within a group or non-arm's length fees and charges;
• analysing agreements with external service providers;
• identifying financial problems originating from an entity in the group to which the insurer belongs; and
• identifying of conflicts of interest arising from intra-group relationships or relationships with external entities.

• analysing audited financial statements and off-balance sheet commitments;
• analysing the settlement of claims and the calculation of technical provisions according to current regulations;
• analysing the operations and financial results by line of business;
• analysing the investment policy (including derivatives policy) and the assets held to cover the technical provisions;
• valuation of the insurer’s investments;
• assessing litigation in which the insurer is a party; and
• analysing the forecasted balance sheets and profit

• assessing the culture of the insurer in relation to customer treatment, including the extent to which the insurer’s leadership, governance, performance management and recruitment, complaints handling policies and remuneration practices demonstrate a culture of fair treatment to customers;
• assessing how conflicts of interests with customers are identified, managed and mitigated;
• reviewing how products are designed and distributed to ensure they fulfil the customers’ demands and needs;
• checking the adequacy, appropriateness and timeliness of the information and advice given to customers;
• reviewing the handling and timing of claims and other payments;
• reviewing the handling, frequency and nature of customer complaints, disputes and litigation; and
• reviewing any customer experience reports used by the insurer or from other sources, such as an ombudsman.