WFII NEWS FROM THE WORLD

Internal newsletter
Issue 11, August 2007

THE GLOBAL INTERESTS OF INSURANCE INTERMEDIARIES

WFII, Avenue Albert Elisabeth 40,
1200 Brussels, Belgium
Tel. 32 2 737 95 80,
WFII@skynet.be

In News from the World the WFII Secretariat compiles information on the most important recent developments in international public affairs that may have impact on insurance intermediaries.

Contents:
  • Insurance education
  • Insurance regulation
  • Large-scale catastrophes
  • IAIS activities
  • Microinsurance
  • Group-wide supervision
  • IAIS annual conference
  • Doha Round
  • Market conduct
  • Coercion
  • WFII World Council meeting
  • News from the markets

Insurance education: roundtable with consumers' stakeholders

In the context of the OECD project on insurance education of the public, the OECD's Insurance and Private Pensions Committee (IPPC) organised a roundtable with consumers' stakeholders. This roundtable aimed to take into account consumer behaviour as regards risks and insurance issues.

When asked about the role that insurance intermediaries play in giving information to consumers, some consumer representatives made strong comments against intermediaries. In general, they were related to:
  • the quality of the information and advice given to the consumers, and;
  • the lack of independency of intermediaries, as they are remunerated by the insurance companies.
WFII verbally intervened in this roundtable underlining that:
  • Intermediaries play a crucial role in the insurance process and in ensuring that insurance products are available to many.
  • The regulatory framework should serve as a basis to define intermediaries' role on financial education and, in particular, concerning the requirements on the quality of information given to the consumers.
  • In this context, we can see that new regulation has been adopted around the world that has solved, to a large extent, the concerns expressed by consumer representatives. An example of this kind of regulation is the Insurance Mediation Directive adopted at EU level.
  • The issue of remuneration is totally unrelated to the financial education of the public.
WFII is actively following up the impact that this roundtable could have on the OECD project of insurance education.

Regulation in the insurance sector

At the last OECD's Insurance and Private Pensions Committee (IPPC) meeting, participants discussed regulatory efficiency and effectiveness in the financial sector.

In general, regulators stressed that they face one main difficulty when they regulate the insurance sector; how to react to the rapid innovation of the insurance industry. In this regard, it is crucial to have the expertise of the market.

The Committee agreed that their work on regulatory efficiency and effectiveness should focus on:
  • Completing the stocktaking exercise in terms of revision of domestic regulatory measures.
  • Studying the methods for the cost-benefit analysis of regulation in the insurance sector.
  • Considering the principles-based regulation against the rules-based regulation.
  • Working on technical preconditions which could allow more efficient implementation standards. On this point, the IAIS representative, Catherine Lezon, underlined that the IAIS was going to cooperate closer with the OECD.
The Committee decided to create a taskforce to work on this issue. WFII will follow up the work done by this taskforce.

OECD international network on large-scale catastrophes

The first conference organised under the auspices of the OECD international network on the financial management of large-scale catastrophes took place in Hyderabad, India, on 26-27 February 2007.

This conference gathered high-level experts from both developed and developing economies and represented a unique platform for discussion on the best ways to deal with challenges raised by large-scale disasters.

Some of the issues studied were the following:
  • Evolution of catastrophic risks and financial consequences.
  • Role of governments, insurance industry and financial markets in the management of large-scale disasters.
  • Improving risk awareness and literacy.
  • Case study on financial management of pandemic risks.
The summary record of the conference is available at the WFII Secretariat and on the WFII website.

IAIS activities for 2007-2009

The Technical Committee of the IAIS adopted on 31 May the Roadmap for Standard Setting Activities within the Framework for Insurance Supervision 2007-2009. This document sets out the priorities for all IAIS standard setting activities over the next two years.

Framework for insurance supervision (picture 1)

Always taking into account the framework for insurance supervision (picture 1), the priority areas of work are presented hereunder:


Market conduct
  • The IAIS will focus its work on the consumer protection aspect of market conduct. This is established in insurance core principles (ICP):
    • 24: Intermediaries;
    • 25: Consumer Protection.
  • A current study is being undertaken by the Joint Forum in this area of market regulation. The final report of this study is expected by the end of the year. In this regard, any work to be undertaken by the IAIS on this aspect should be inspired by the findings of this study.
  • The work on the consumer protection aspect of market conduct will be further considered in 2008, with a view to commencing formal activities in 2009.
WFII has already started work on this issue. The results of a survey in this context will soon be available for WFII members.


Microinsurance

Work is expected to commence on the development of:
  • Draft principles and guidance on the issue of regulation and supervision of microinsurance.
  • An issues paper on the regulation and supervision of mutual organisations in emerging economies.
WFII calls upon its members to identify experts or interested persons in the field of microinsurance.


Corporate governance
  • The IAIS has established a Corporate Governance Task Force to consider a framework for the governance of insurers.
  • The initial priority of the work in this area will be to take stock of existing requirements in the area of corporate governance with the objective of defining the main elements of a broad corporate governance framework applicable to insurers.
  • A progress report will be presented to the Technical Committee in October 2007.


Financial reporting

In 2007 the IAIS will be working on:
  • A comment letter on the IASB's Discussion Paper on Phase II, which was issued in May 2007, for comment by 15 November 2007.
  • Producing comments to the IASB, on areas relevant to Phase II which are either not covered in the Discussion Paper, or on which the IASB has not yet reached a preliminary view.


Review of the Insurance Core Principles

The IAIS will start reviewing the insurance core principles in 2008 (the last comprehensible review was undertaken in 2003).


Reinsurance

A number of projects leading to new supervisory papers are expected to be progressed during 2007-2009. We can highlight:
  • Reinsurance mutual recognition.
  • Regulation and supervision of captives.
  • Issues of contract certainty.


Solvency assessment


The IAIS proposes to develop standards and guidance papers on:
  • The valuation of assets and technical provisions.
  • Capital requirements and resources.
  • Enterprise risk management for solvency purposes.
  • Use of internal models by insurers.


Public disclosure
  • The IAIS will conduct a survey on the implementation of the standards on the disclosure aspect of market conduct.
  • Based on the results of this survey, further consideration will be given to the development of additional standards or guidance material.
  • It is proposed, at a minimum, that the three standards will be consolidated into a single, cohesive disclosure standard.
WFII will monitor all the above-mentioned activities. Members are invited to inform the WFII Secretariat about national developments in all these areas.

Latest developments on microinsurance

Issues paper in regulation and supervision of microinsurance

At the last IAIS triennial meetings, held in Basel on 29-31 May, the IAIS adopted the final version of the Issues paper in regulation and supervision of microinsurance. The Paper explains:
  • the current state of microinsurance, and;
  • why it needs to be regulated and supervised along professional lines.
The Paper underlines that brokers could have potential in the field of microinsurance, as a possible professional representative of the policyholder. However, it stresses that few examples have been implemented.

WFII actively participated in the consultation process of the Issues Paper. The Paper is available at the WFII Secretariat.

WFII invites its members to identify experts or interested persons in the field of microinsurance.


Country studies on microinsurance regulation and supervision

The IAIS is supporting CGAP (a consortium of 33 public and private development agencies working together to expand access to financial services for the poor in developing countries) in the implementation of country studies on microinsurance regulation and supervision.

The countries selected are South Africa, India, Philippines, Uganda and Colombia. They will provide practical experience in the provision of microinsurance.

WFII invites its members to identify experts or interested persons in the field of microinsurance.

IAIS consultation: group-wide supervision

The IAIS has issued the revised draft of the Paper on Principles on group-wide supervision. The Paper aims to formulate minimum requirements that can contribute to ensuring proper supervision at group level.

WFII submitted its comments to the first draft paper in April 2007. As agreed with the WFII Executive CSE Committee, WFII answered in line with its general position on the issue.

As there is no substantial change in the second version of the Paper, WFII does not intend to submit any comments. However, we will carefully monitor any new development on the subject.

The document is available at the WFII Secretariat.

IAIS next annual conference

The 2007 IAIS Annual Conference will take place in Fort Lauderdale, Florida, on 16-19 October 2007. Back-to-back with the Annual Conference, the IAIS Triennial Meetings will be held on 14-16 October. Information on this conference was sent to all WFII members in June.

WFII will sponsor the IAIS conference and a WFII delegation will be present at the conference.

Under the theme "A Global Climate for Change - the Future of Insurance Supervision", this year's Annual Conference will address a host of critical issues:
  • Global Regulatory Convergence.
  • Cross-Sectoral Risk Transfer and Securitisation of Emerging Economies.
  • Reinsurance.
  • Promoting Sound Insurance Markets, Principles-Based Supervision.
  • International Accounting Standards.
  • Ageing Society.
  • Microinsurance.


Doha Round: negotiations at a crucial stage

The Doha Round negotiations are currently at a critical point, following the collapse of the G4 negotiations (EU, US, India, Brazil) held in Potsdam, Germany, in June.

The EU and the US released statements pointing to the lack of effort made on the part of India and Brazil in relation to industrial tariffs as the main reason for the collapse. Brazil and India blamed the lack of flexibility on agricultural subsidies as the key problem.

However, Pascal Lamy (director of the WTO) has called for a continuation of the negotiating process in Geneva, stating that convergence amongst the G4 is not "indispensable". In this regard, the chairmen of the WTO bodies negotiating agriculture and non-agricultural market access in the Doha Round, released on 16 July, draft frameworks for those negotiations in an effort to move the Round forward following the collapse of the G4 process.

It is foreseen that a services cluster will take place in Geneva from 18 to 28 September. In this respect, the Global Services Coalition is planning to organise a mission to Geneva to push once more for services liberalisation. WFII will consider participating in this mission.

WFII is actively following up any new development on these negotiations and continues its dialogue with some key negotiators.

Background information on the Doha Round

The initial target on trade negotiations was to finalise the Doha Round by the end of 2005. However, the obstacles in the negotiation concerning agriculture provoked the suspension of the talks on 24 July 2006.

The negotiations were relaunched in Davos in January 2006. Since then, negotiators have been working towards reaching a breakthrough in the negotiations, which has still not materialised.

Market conduct

During the WFII annual meetings held in Singapore this year, it was decided that one of the main areas of attention and work for WFII in the coming months is the preparation of a WFII position on issues related to market conduct.

As we already know that the IAIS will start from the existing Insurance Core Principle on consumer protection (ICP 25), we should:
  • Identify how this principle is implemented in the various jurisdictions around the world, evaluate it and find points in common.
  • Identify what this principle means for us.
  • Find a WFII common position to present to the IAIS.
On this basis, in June the WFII Secretariat prepared and sent a working document to the Executive CSE Committee. This document identifies the issues which require our attention.

We are currently comparing the comments received and we will send the result of this analysis in the coming weeks.

Coercion

On the basis of the information sent by COPAPROSE, the WFII Secretariat also prepared a working document on the alleged abuse of rights of freedom of choice (coercion) being applied by some financial institutions in Latin America.

The document, which was sent to WFII members in July, aims to gather information on how the issue of coercion is dealt with around the world and could possibly be a source of inspiration for COPAPROSE to prepare a position.

Also on behalf of COPAPROSE, we would like to thank the WFII member associations for the important number of reactions that we have received. In addition, we will prepare a conclusion document on this subject in the coming weeks.

Next WFII World Council: Madrid 2-3 March 2008

The next WFII World Council meeting will take place in Madrid on 2-3 March 2008. A provisional agenda of this meeting was sent in June. More detailed information will be sent in September.

In the meantime, Michel Flamé, chairman of the IAIS Executive Committee, has accepted our invitation and will participate in our WFII meetings.

News from the markets

United States -Commission to modernise financial services regulation

Governor Spitzer has set up the New York State Commission to modernise the regulation of financial services and in order to review New York's financial statutes, regulations, rules and policies.

In particular, the Commission will be responsible for:
  • Identifying ways in which regulatory powers may be integrated and changed in order to promote economic innovation and consumer protection;
  • Recommending specific changes in statutes and regulations;
  • Ensuring that all statues and regulations serve a beneficial purpose with benefits in excess of the costs imposed.
The Commission will be chaired by New York Insurance Superintendent Eric. R. Dinallo.

The Commission will issue its final report and recommendations by June 30, 2008.


Europe: Free Trade Agreements between the EU and India/Korea
  • India On 28 and 29 June in Brussels, the EU and India officially launched the negotiations for a bilateral free trade agreement (FTA). The next round of negotiations is expected to take place in autumn this year.

    The EU and India expect to promote bilateral trade by removing barriers to trade in goods and services and investment across all sectors of the economy. Both reiterated their belief in the primacy of the multilateral trading system and reaffirmed their commitment to the Doha round of negotiations
  • Korea The European Commission hosted the second round of negotiations with South Korea from 16 to 20 July.

    The negotiations aimed at a balanced agreement:
    • Creating new opportunities for business, increasing competitiveness in the EU and in Korea, and stimulating growth and job creation.
    • Charting new territory in areas not yet covered by the WTO and making the FTA a stepping stone for the multilateral.


Europe - New EU solvency rules ("Solvency II")

The European Commission released on 10 July its formal proposal on "Solvency II". Under this new system, insurers would be required to take account of all types of risk to which they are exposed and to manage those risks more effectively. In addition, insurance groups would have a dedicated 'group supervisor' that would enable better monitoring of the group as a whole. The Commission aims to have the new system in operation in 2012.

This proposal is part of the Commission's "better regulation" strategy and its commitment to simplify the regulatory environment in order to cut red tape. It will replace 14 existing directives with a single directive.

The proposal now passes to the European Parliament and Council for consideration.


Australia - Insurance market situation

According to a survey carried out by NIBA after the June 30 renewals period, insurance premiums are continuing to fall as insurers battle for market share. 77% of brokers responding to the survey have reported falls in premiums for commercial clients.

When asked to rate the hardness of the personal lines market on a rating of one to 10 - one being the softest and 10 being the hardest - there was a preference towards hardness. Some 39% of respondents rated personal lines at a level of five.

In commercial lines, a softer market is becoming evident as insurers continue to cut premiums to gain market share.

Brokers are concerned by the continuing fall in rates in commercial lines - a global trend - with 43% singling this out as the major market issue.

Professional indemnity saw the majority of respondents split between 33% reporting decreases of 1-9% and a further 33% seeing decreases of 10-19%.

Domestic premiums show a slightly different result to the other premiums with 39% experiencing no change to premiums at all.

Brokers were also asked how much compliance with regulations costs their businesses. Some 40% of brokers are spending between $16,000 and $30,000 a year on compliance. Another 21% are spending $11,000 to $15,000, and 20% $31,000 to $45,000. Larger broking companies pay far more again.

WFII, the World Federation of Insurance Intermediaries represents insurance agents and brokers from over 100 national associations (in over 80 countries) across the world. It was formally launched in January 1999, in Washington D.C. and represents over 400,000 professional intermediaries who handle the vast majority of insurance placements globally. WFII was created to promote the increasingly vital role of insurance intermediaries in today's economy, providing a powerful voice to advance their interests at international level.

The role of insurance intermediaries in the overall economy is, essentially, one of making insurance - and other risk management products - widely available, thereby increasing the positive effects of insurance generally - risk-taking, investment, provision of basic societal needs and economic growth. There are several factors that intermediaries bring to the insurance marketplace that help to increase the availability of insurance in general.

For more information about WFII or the role of insurance intermediaries please visit: www.WFII.org

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