Julian Mamo is one of those people who look unflappable whenever and wherever you see them. He just doesn’t do ‘panic’mode. Which is probably just as well because the organisation he presides over, the Malta Insurance Association, is always under pressure.

There are regulatory directives, accounting changes and consultation initiatives. And to top it all, the industry is constantly fighting the misperception that it will do anything to avoid paying claims.

Take the latter issue: as featured in The Business Observer of October 8, the loss ratio (gross incurred claims to gross earned premium) was 66.6 per cent in 2014 for motor claims, and 65 per cent for health.

“The vast majority of the premiums collected is in fact paid out in claims and operating expenses: obviously you need an operation to administer policies and claims, you need experts and you have to have compliance officers.

“But to be fair, we are not there just to pay claims and make losses. There needs to be a reward – profit, if you like. We are not a charitable institution but I can assure you that we operate in a highly competitive market so we are unlikely to be excessively profitable,” he said.

“Insurance is a numbers game based on the laws of probability, aimed at ensuring sustainability. But you also have to factor in the unexpected. Malta gets reinsurance support from outside its borders and it is incredible how the web of insurance and reinsurance becomes extremely connected throughout the world, to the extent that a hurricane in Florida can affect premiums in Malta.”

Working out the probability and impact of that hurricane is the job of an actuary – a relatively rare breed in Malta – but the regulator’s job is to ensure that insurance companies do not take on liabilities or potential liabilities beyond what they can handle, and that they have put enough away for that – literally – rainy day.

Between the cost of an actuary and risk and compliance officers, the ever-increasing amount that has to be put aside as a capital buffer and those rainy day claims, insurance companies seem to have no end of challenges.

What if a drone falls and injures someone at a concert or if it interferes with the flight path of a plane?

How can small companies survive? A few years ago, Mr Mamo’s predecessor had said that the number of players in Malta was not sustainable, and there has indeed been some consolidation – most notably the acquisition of Allcare by Mapfre Middlesea. Will we see more consolidation and mergers and acquisitions? Is there a pressing need for it? Some operators might be more inclined than others but I would not say there is a desperate need for consolidation to take place. People seem to be taking it in their stride,” he said.

Does size matter? Mr Mamo believes that we sometimes tend to see the island’s problems as being unique.

“We tend to think that we are the only small jurisdiction! Of course, we have to pitch against bigger players but there are many others like us. And Europe does not only compete with European companies but also with companies around the world.

“This is why the industry needs to tread carefully and this is a message that should be sent back to Europe. Supervision is good and the industry should not be self-regulating – but we must be wary of over-supervision and putting too much of a burden on operators.

“Having said that, I do not subscribe to the Doomsday view that the sector is not sustainable – as there is a strong European drive towards proportionality.”

The most pressing regulatory issue over the past decade has been the implementation of Solvency II, which comes into force in 2016. The local industry has been assessed as being ready for it.

“We have known the deadline for two years and have been approaching things as though it were in force since the beginning of 2015, so we are already living it! But really and truly it is not going to be sudden as none of the changes are quick fixes. It is about whether you have your processes and governance in order. Can you report in the right way? Can you extract the appropriate data?

Do you have all the manuals and procedures in place? These things are not done overnight and people have been working on this for some years.”

There are also international changes to new accounting standards – IFRS 4 – which haveimplications for insurance companies. As with Solvency II, the deadline remained a moving target for many years and so far, it seems to be 2018 – although it might change again.

“Whatever date it is, for comparative purposes, you would need to start work a year before, so we definitely need to know our time horizon! As a public interest entity, we also need full understanding of what the impact is going to be. The accounting change could make a material impact on a company,” he said.

The association appointed a consultancy firm to analyse the changes and their impact, and as soon as the report is ready, it intends to make its voice heard to make sure that any negative impact is cushioned appropriately.

Projects like these do not only cost huge amounts but are also a distraction for managers trying to run their business. And as if they are not enough, there are also national consultation papers on other topics – such as an MFSA one on conduct of business, aimed at tackling issues like mis-selling.

Mr Mamo’s tone remained polite but the point he made could not have been clearer.

“The timing of it is very unfortunate. We feel it would have been more appropriate to have let the dust settle – especially since there are no major conduct of business issues in the general and life insurance sectors.

“The consultation paper is way too detailed and onerous on insurance companies. We seem to have been caught up in a reaction to issues in other financial services sectors.

“We have given our feedback and we hope that the MFSA listens to the points we have raised as otherwise we are ready to come out against it in public. We need a more pragmatic approach. There is no point in changing things and turning them on their head for no real reason. It is expensive and unnecessary.”

The insurance sector’s sharing of data is also being scrutinised to ensure it does not go beyond the boundaries of data protection – but with 10 per cent of all insurance claims in Europe being undetected fraud, the sector believes information is key.

Supervision is good and the industry should not be self-regulating – but we must be wary of over-supervision and putting too much of a burden on operators

“Data protection has long been an intrinsic part of the way in which we operate and we are very aware of the sensitivities and the rights of people to protect their data. Where we need consent to use data in a particular way, we seek consent and even when we use data, it is used very judiciously.

“But there is no doubt that fraud is a concern at both individual company level and at market level and the sharing of data to detect it is an important aspect of how we try to manage the situation,” he said.

The fraudulent claims that end up in court are just the tip of the iceberg as most just end up with the claim being refused.

“It is a commercial decision for companies as to whether they take it further or not. I would say the majority of the cases never make it to court as the amounts do not always merit further action.

“However, clearly when we identify organised fraud, with people fabricating claims and staging accidents, it is quite a different matter.

“We have managed to work as an association to catch many of these.

“We do detect significant amounts of fraud, which is one of the problems that we face when it comes to public perception about claims, as people perceive us to be very difficult, asking a lot of questions. If we pay fraudulent claims it has a negative impact on the premiums paid by those who are honest.”

Sharing data is important as it helps operators to check trends and patterns, for example, people moving from one company to another, claiming multiple times for the same thing.

“The objective of an insurance policy – with the exception of certain categories of insurance like life and personal accident – is for a person to get compensation, not to make a twofold or threefold profit out of a mishap! Imagine what an incentive that would be to try to defraud insurers!

“If there is more than one policy, then insurers share the cost between them proportionately. This is known as the ‘contribution clause’. And it is up to the companies – not up to the policyholder – to decide under which policy to claim! What we want to do is pay claims efficiently and in a timely mannet but we need to be able to weed out those who try to abuse the system.”

Challenges do not only come from Brussels or from regulators: technology also keeps the sector on its toes.

One of these is cyberinsurance and the dependence of organisations on IT and the web – which actuaries are constantly trying to assess. And who would be responsible if one of the driverless cars of the non-too-distant future were to crash?

“And drones!” he said, with a shake of his head.

“What if a drone falls and injures someone at a concert or if it interferes with the flight path of a plane? And what about abuse of privacy?

“How do you calculate the risk, the worst case scenario and, ultimately, the premium? And without that, how can they get insurance cover?”