BY LINDA ENSOR
THE Insurance Bill, tabled in Parliament on Friday, will introduce a regulatory framework for microinsurers and a consolidated legal framework for the prudential supervision of insurers, the bill’s memorandum says.
The bill introduces a new solvency assessment and management regime to ensure the financial soundness of insurers, a framework for the supervision of insurance groups and enhanced arrangements for reinsurance.
The bill will replace those sections of the Long-term Insurance Act and the Short-term Insurance Act dealing with prudential supervision. The Treasury is keen that the bill — which has been in development for the last six years — be implemented as soon as possible as it believes that any delay will result in increased costs and a loss of momentum.
Insurers are already reporting according to the new sections, and have started to develop the required processes and systems.
The bill builds on the twin peaks model of financial regulation provided for in the Financial Sector Regulation Bill, and aims to protect policyholders, enhance access to insurance for low-income groups and maintain the stability of insurers.
“It supports the development of an inclusive insurance sector through the proportionate and appropriate regulation and supervision of microinsurance. It balances lowering regulatory barriers to entry so as to facilitate access and support affordability, while at the same time ensuring that there is appropriate and sufficient consumer protection in place,” the memorandum notes.
Microinsurers will have to be registered under a separate, dedicated licence. Their minimum capital requirements will be lower and the prudential regulatory model applicable to them will be simpler. Informal microinsurers will be assisted to formalise their businesses.
With regard to the proposed solvency assessment and management regime, the memorandum states that the existing regime no longer meets the objectives of prudential supervision.
“The prevailing framework is rule-based and primarily relies on historical information. This does not allow for a proactive and risk-sensitive approach to prudential supervision,” it says. “The new solvency assessment and management regime introduces a forward-looking, risk-based approach to solvency by aligning the capital requirements with the underlying risks of an insurer.”
The bill also addresses the deficiency in existing laws which do not allow for the supervision of insurance groups whereas a significant number of licensed insurers operate within a group structure. With regard to reinsurance, the bill aims to put in place a prudential framework that protects insurers from nonperformance by reinsurers operating outside the country.
“The prevailing legislative framework inadvertently allows for undesirable regulatory arbitrage and an unlevel playing field. Further, the framework could be improved to enhance the role played by reinsurance in the insurance sector.”