Letter | Still focused on insurance solvency
The Editor, Sir:
With reference to the Insurance Helpline column published in the Sunday Gleaner of September 9, 2018, titled 'Finally, insurance reform with upsides for consumers', the Financial Services Commission, FSC, would like to thank you for your article regarding our Revised Guidelines on Market Conduct for Insurance Companies and Intermediaries IR-CONSUL-18/07-0016, published on our website.
Allow us, however, to clarify a few points.
First, the FSC has not "switched" from solvency-based supervision. Solvency-based supervision has and will continue to be an integral aspect of our work. Since our inception in August 2001, following the replacement of the Office of the Superintendent of Insurance and Unit Trusts and the Securities Commission, we have professed that our objective is to manage and regulate the non-depositing financial sector, by employing standards benchmarked against international best standards. These standards are based upon a risk-based approach to financial management and supervision.
Our primary goals, as far as insurance regulation is concerned, are to maintain financial stability of the sector, public confidence in the integrity with which financial transactions are conducted, and to protect policyholders. To achieve these objectives, we have established regulatory rules to ensure that, among other things, insurers remain solvent and have the ability to pay claims when they become due.
This process of establishing regulatory rules and the monitoring of insurance companies is known as solvency supervision. By means of solvency supervision, our focus is to minimise the number of failures, reduce the negative impacts on the consumer if failures should occur, and to minimise any loss of confidence that results from the failure of an insurance entity.
The FSC, however, is not only responsible for solvency supervision; we are also responsible for market conduct supervision. You may agree that any confidence in the insurance industry could be eroded if insurance companies, although having the ability to meet obligations, refuse to meet those obligations or meet their obligations in a manner not anticipated by the policyholders. Hence, through market conduct supervision, we ensure that insurers meet their obligations, with the focus being on full disclosure to policyholders, the provision of fair products to the consumer, and the provision of products that meet the needs of the consumer. The existing Insurance Act and Regulations contain both solvency and market conduct rules.
What we are seeking to do is to refine and improve some of those market conduct rules, for the benefit of policyholders.
Second, from the point of view of the Government's budget, the FSC is a self-financed public body with its resources generated primarily from fees charged to various regulated entities, according to a schedule approved by our Board of Commissioners.
Generally, we operate independently in respect of regulatory decision-making in relation to the insurance, pensions and securities industries. Parties affected by or subject to FSC decisions may seek to find redress through a number of channels, including an appeal to the Board of Commissioners itself, to an independent appeals tribunal, and/or the courts.
Operationally, we have significant autonomy through our board with respect to corporate strategy, operational strategy and financial management.
However, as a public body subject to the Public Bodies Management and Accountability Act, we are subject to oversight from the relevant portfolio ministry in this case the Ministry of Finance and the Public Service in respect of, among other things: approval for the establishment of posts and salary scales; guidelines issued from time to time in respect of wage policy, which may apply to the public sector, as determined by the Ministry of Finance; financial instructions issued from time to time by the Ministry of Finance; and periodic reporting requirements.
The above-mentioned oversight arrangements are not unique to the FSC, and, one can argue, is necessary to facilitate accountability where certain public functions have been delegated to a separate statutory body.
We trust that the information provided in our response will help to remove any misunderstanding which may have been generated in the column.
As a final note, the consultation paper, which was the subject of the column, is meant to elicit comments from as wide a cross section of the public as possible. Anybody may provide comments. Once the consultation period is over, our Board of Commissioners will approve any proposed change to regulations, which will then be tabled in Parliament through our portfolio ministry.
- Everton McFarlane is the executive director of the Financial Services Commission.