Move to transfer insurance supervision to Central Bank must not be delayed

A Bill to amend the Insurance Act, 1980 was laid in Parliament before Christmas which when passed will have the effect of transferring responsibility for supervision of insurance companies, insurance intermediaries and pension plans from the Supervisor of Insurance to the Central Bank. At the present time, insurance supervision falls within the public service in the Ministry of Finance and it has always been argued that it was impossible to attract and retain professional staff to effectively perform the kind of work to ensure the industry’s compliance with the provision of the Insurance Act.

Moreover, notwithstanding the close linkage between the Government and the Central Bank, there is no doubt that the public at large see the Central Bank as an independent institution free from the influence of politicians. The public will therefore expect that when these new arrangements are finally put in place the insurance industry will be better regulated and brought on par with the banks. The financial services industry whether it is banks or insurance companies rely on public confidence in them and the move to raise the bar in terms of compliance must be welcome. With the coming of the FTAA and greater liberalisation of the financial services sector, it is an imperative that there is better oversight and this transfer of supervision is only the first step in the process.

It would be worth noting that work has been going on for at least the past three years where training and recruitment in a new approach to insurance supervision have been taking place with the help of international consultants and regulators from other developed countries. If there is a criticism it is that it takes far too long for anything to happen in this country and we cannot go forward if we continue to play catch up when the rest of the world is moving ahead. Debate on the Bill started last Friday — January 9 — in the House on what is clearly an innocuous piece of legislation as it merely seeks to substitute the Supervisor of Insurance by the Central Bank and the Inspector of Financial Institutions. From a lay person’s standpoint, it merely requires a few words to give effect to this change and should require virtually no discussion and be disposed of within minutes. However, it is a little more complicated than that since certain provisions in the present Insurance Act, 1980 must be brought in line with the Financial Institutions Act, 1993. In the final analysis, it took 56 pages of amendments — yes, 56 pages merely to give effect to the changes and at first glance the whole exercise seems very complicated.

In fact, the debate continues and parliamentarians have raised issues about policyholders’ protection and the substantive Insurance Act itself and it could be still some time before the Bill is approved and taken to the Senate. The Insurance Act will then be slated for major amendments and while the focus has been on strengthening capital requirements and stronger supervision and compliance the time has come when the Act must address trade issues in light of the FTAA and liberalisation of the financial services sector. There are new issues of cross border trade and the need for a licensing regime to deal with the suitcase trade to ensure reciprocity where our people cannot operate in well regulated jurisdiction but they can enter our market and are out of the reach of our regulators. It is well accepted that the current Insurance Act, 1980 is outdated and without any meaningful amendments for over 20 years and it is urgent that the Central Bank pushes to get the Act amended to make it relevant to our times and  address the new trade issues as well. The public will be expecting more proactive and aggressive action from the Inspector of Financial Institutions and the Central Bank since there has always been a public perception that the Office of the Supervisor was not particularly effective in dealing with certain general insurance companies especially with respect to complaints on claims settlement. There can be no magic wand because our legal system tends to move very slowly and it will take a concerted effort by all parties to see any tangible improvement. Nonetheless, there are high hopes that the transfer of insurance supervision to the Central Bank will bring about a change.

In Trinidad and Tobago, there is no such thing as smooth sailing and what to an outsider might seem as simple becomes complex and complicated. To the ordinary layman, here is a situation that there is a transfer of one activity from within the public service to the Central Bank. Staff can remain in the public service and be assigned to other departments if they choose to stay while the Central Bank will offer employment to the staff that they require. It has become complicated and my understanding is that the union now wants to get involved and is looking to have “vsep.”

While not wanting to be critical of employees’ representatives, the world is moving ahead and at times one cannot help but feel that in Trinidad and Tobago we talk of being progressive and forward thinking to compete yet we want everything to stay the same with old outdated practices and procedures that have little or no relevance in today’s world. That is another irritant in the transfer of the authority for supervision to the Central Bank that has to be worked out but in the end there will be a solution although we might have lost some time.

We have been advocating for stronger and more effective supervision as well as new insurance legislation that addresses the complexities of the insurance business. We cannot delay the process and indeed we must continue our efforts to bring about a better and more effective regulatory framework in the interest of all.

E-mail: daquing@cablenett.net