Tighter control, security for insurance industry

The Central Bank Governor, Mr Ewart Williams addressed the insurance industry and the wider financial services sector last week on the plans for “integrated supervision” whereby insurance companies and pension funds would fall under the supervisory authority of the Central Bank. The man in the street and the public at large might well ask the question, what all of this means to them and would they in the final analysis feel more comfortable and reassured that insurance companies would respond and honour legitimate claims. In fact, the issue of integrated supervision has caught the attention of other elements of the media and this was the subject of breakfast television a few days later so there is some interest in the eventual outcome of the ongoing project work. Let me hasten to add that there is no quick fix to any situation. There are stages in the process but ultimately the objective is to finally have a regime that will ensure that insurance companies and pension funds are managed in accordance with best practices internationally and therefore minimise the risk of failures with the general public having a higher degree of confidence in our institutions. The first step is to bring the insurance industry under the regulatory ambit if the Central Bank and it is expected that the legislation to give effect to that move could be before Parliament within the next couple of months.

The second step is the bringing to Parliament of insurance legislation that will comprehensively update the existing Insurance Act, 1980 which is clearly outdated and unable to respond to the new realities of the insurance business.The third strategy is the longer-term issue of the Super Regulatory Agency that will have the responsibility for the supervision of all financial services including the credit unions and security business. The present system of insurance supervision places the regulator — the Supervisor of Insurance under the Ministry of Finance. Immediately, that places the office within the public service structure with all the implications for manpower resources and the ability to attract suitably qualified professional staff to monitor and supervise an increasingly complex industry. In addition, inspite  the power conferred in the law the supervisor is perceived as being powerless since he could be influenced by politicians and therefore the office itself is diminished. In Trinidad and Tobago, position and stature count and the regulator is not seen at the same level or in the same league as the captains of industry or for that matter the executives of companies that he monitors. The approach to an integrated supervisory agency is widespread in both developed and developing countries so Trinidad and Tobago is merely attempting to find a model that suits our culture and takes into account our limited human resources. The Central Bank has been recruiting and training staff. It is preparing for its increased responsibilities and proposes to use technical assistance from the Canadians who have been recognised as having a high level of expertise in insurance supervision.  However, the biggest challenge ahead for the Central Bank is to find agreement with the insurance industry on the issue of new insurance legislation.

The first insurance legislation was introduced in 1966 and this was subsequently repealed and replaced by the current Insurance Act, 1980. This Act is now 23 years old and applicable to an era that is long gone. However, not withstanding the deficiencies of the legislation especially in the area of capital requirements, non-compliance and exit there are many notable features especially in respect of trust funds to protect policyholders and these provisions should be maintained in any new legislation. There have been many drafts of amendments to the existing legislation as far back as 1988 — 15 years ago — but they were not introduced in Parliament because the government felt that it was unable to obtain the required parliamentary majority. The issue was always how to give the supervisor power more akin to the Inspector of Banks to deal with delinquent companies. Whereas in the past some insurance companies might have had objections against the level of capital required, the sense today is that capital may not be an issue as there is the reality that only adequately capitalised companies will have a future in a more liberalised trading environment resulting from FTAA and GATS. In addition, the draft prepared by the consultants does give a timeframe within which companies that do not now have the capital will be allowed time to meet the new requirements. The industry’s main bone of contention is the consultative process employed by the consultants in arriving at their recommendations. There are different schools of thought — those who would like to see all embracing legislation that takes the country to modern day practices in one fell swoop as the way to go and that assumes that we are a people that normally uphold law and order and follow the letter of the law even in spirit when in fact we are the complete opposite. On the other hand there are those who would like to see incremental strengthening of the regulatory framework.

There is a strong view that good corporate governance is some distance away in Trinidad and Tobago and the best way to safeguard policyholders’ interest is to ensure that insurance companies comply with the existing requirements in terms of trust funds that leave little discretion in the hands of companies and therefore little room for abuse. Simply put, we have not yet reached a stage that we can trust ourselves to good corporate governance and while working towards these noble objectives we must not lose sight that the primary objective of improved legislation is to provide greater safety to the public and therefore we should do nothing that will provide less security for policyholders during the period of transition. While the focus is on insurance companies there is also an urgent need to address the competencies of the providers of ancillary services in the insurance industry to ensure that the advice that the public receives is correct and that they are not misled through inaccurate marketing and sales techniques. There must be a holistic approach that will increase consumer confidence in the insurance industry — better supervision of insurance companies is only one element — safeguarding consumer rights through consumer protection legislation and a responsive competition policy must go hand in hand.
E-mail : dacquing@cablenett.net