WFII NEWS FROM THE WORLD

Internal newsletter
Issue 13, December 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:
  • Regulatory efficiency
  • Private sector advisory group
  • Work plan 2008-2009
  • Report on insurance laws
  • Global reinsurance report
  • Market conduct
  • WFII meetings
  • News from the markets


Regulatory efficiency and effectiveness

The latest OECD's Insurance and Private Pensions Committee (IPPC) meeting took place in Paris on 5 and 6 December 2007. A discussion was organised on regulatory efficiency and effectiveness.

Some of the specific conclusions that were underlined during the discussion were the following:
  • International best practices for effective insurance and private pension regulation and supervision, as elaborated by the OECD and the IAIS, provide an important benchmark for assessing the effectiveness of systems of insurance and private pension regulation and supervision.
  • The regulatory and supervisory framework for insurance should be consistent with market practices and be risk-focused.
  • The growth of financial groups and conglomerates and the convergence of financial sectors suggest that more coordinated and consistent forms of legislation, regulation, and supervision should be adopted across financial sectors.
  • Insurance regulation and supervision within and across OECD countries should, to the extent possible, be made more consistent and not lead to unnecessary regulatory burdens.
  • The scope for greater reliance on regulatory principles should be explored in OECD countries, taking into account national specificities.
Nic De Maesschalck, director of WFII, intervened in the discussions to underline two main points that had not yet been addressed. He stressed that an effective insurance and private pension regulation should:
  • Promote and enhance competition in the insurance market,
  • Ensure compliance with the commitments made in terms of liberalization (WTO, plurilateral and bilateral agreements) and not be a barrier to international trade.
These suggestions were welcomed both by other industry representatives (from the insurers side) and by various official delegates. The secretariat will consider these issues further in the framework of the development of the paper on this issue.

WFII is actively following up the results of these discussions.


Private sector advisory group

The OECD's Insurance and private Pensions Committee (IPPC) was subject to an in-depth evaluation in 2006 by the OECD Council, the top decision-making body of the OECD. Among the recommendations of the Council in relation to the Evaluation was a recommendation to review the way in which the private sector's contribution is channeled into its work. In making this recommendation, the Council expressed appreciation of the value of the private sector's contribution.

In this regard, the IPPC has therefore worked, in the context of its response to the recommendation of the Council, to articulate the role of the private sector better. In this respect, the IPPC agreed on the following steps:
  • Enhance the private sector input: The IPPC has agreed to organize roundtables with private sector experts on themes that could be suggested at the initiative of the industry. It has also agreed to release draft policy material for public consultation in order to obtain broader input.
  • Private-sector advisory group: The IPPC has also agreed to establish an informal private-sector advisory group with whom the secretariat could consult regularly.
WFII has already announced during the latest IIPC meeting its willingness to participate in the advisory group and further contribute to any initiative carried out by the Committee.


OECD work plan for 2008-2009


During its latest meeting, the OECD's Insurance and Private Pensions Committee (IPPC) identified its main priorities of work for 2008-2009. These key areas are:
  • Improving insurance and private pensions awareness and education.
  • Strengthening private pensions systems to help them address the challenges of ageing.
  • Enhancing the efficiency and effectiveness of insurance and private pensions regulation.
  • Improving the financial management of large-scale catastrophes.
In the context of improving insurance awareness and education, the Committee has already announced that one of its priorities will be to further study the role that intermediaries play in insurance education.

The position and strategy that WFII will adopt on this issue will be studied and discussed during the next WFII annual meeting.


IAIS report on insurance laws

The IAIS published in December 2007 a report on insurance laws, regulations and practices in IAIS member countries. Concerning intermediaries, the report underlines that almost all jurisdictions have some form of regulation relating to the business of insurance intermediation. The report stresses the following points:

Distinction between agents and independent intermediaries
  • Most jurisdictions (81%) distinguish between independent intermediaries and intermediaries which are not independent from an insurer.
  • Several criteria are used in defining independent intermediaries. The most important is whether the intermediary has any contractual obligation towards an insurer. A large number of jurisdictions (1 out of 4) also examine other criteria, such as whether or not the intermediary is remunerated or employed by an insurer or whether a considerable part of the intermediary's business goes to one insurer.


Licensing and regulatory requirements for intermediaries
  • Almost all jurisdictions have some regulations which apply to intermediaries. Most jurisdictions require intermediaries to be incorporated within the jurisdiction (independent intermediaries: 38%, agents: 24%) and to be approved, licensed or registered by the insurance authority (independent intermediaries: 95%, agents: 38%).
  • Almost all jurisdictions lay down preconditions for being licensed by the authority. The majority of jurisdictions set requirements relating to the intermediary's professional competence (65%) and good repute (75%).
  • Around half of the jurisdictions demand that independent intermediaries provide certain information to clients and disclose their relationship with insurers, and only a bit fewer jurisdictions require this of agents.
  • Professional competence is considered as an essential operational criterion by 65% of the jurisdictions. The average is 1-3 years for independent intermediaries and 0.5-2 years for agents.


The supervision of intermediaries
  • In the large majority (60%) of jurisdictions the supervision of intermediaries is conducted by the insurance supervisor.
  • Almost all jurisdictions provide supervisors with the ability to apply sanctions to intermediaries.
  • In one third of the jurisdictions cross-border service can be performed on its territory by foreign (independent or dependent) intermediaries (all of these jurisdictions are from the European Economic Area), whilst only one fourth of the 22 responding jurisdictions allow foreign insurers to sell their products via an inland intermediary (here, only half of them are from the EEA).

The Document is available at the WFII Secretariat.


IAIS Global reinsurance market report

The IAIS published on 12 December its fourth annual overview of the financial condition of reinsurers, Global reinsurance market report 2007. The report also considers future challenges to the market, concluding that the sector remains robust and that low levels of losses during 2006 have improved the industry's financial condition.

The report analyses exposure and premium statistics submitted by the world's largest reinsurers relating to their business in 2006. As risk mitigation practices evolve, reinsurers are exploring new methods to diversify risk. The report addresses such activities, including credit risk transfer, the transfer of insurance risk to the capital markets and portfolio diversification.

The report also explores future challenges faced by the life reinsurance industry. The challenges include:

1. One-off catastrophe-type risks, such as pandemics,

2. Issues arising from longer-term trends, such as longevity and levels of obesity in western societies.

The report is available at the WFII Secretariat.


IAIS work on market conduct

As WFII already announced, the IAIS will start to work next year on the issue of 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 January 2008. In this regard, any work to be undertaken by the IAIS on this aspect should be inspired by the findings of this study.

The position and strategy that WFII will adopt on this issue will be studied and discussed during the next WFII annual meeting.


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. The invitation letter and provisional program was sent on 12 December 2007. Documents for the meeting will be sent in January.

Michel Flamée, chairman of the IAIS, accepted our invitation and will participate in our WFII meetings.


News from the markets


Latin America -Copaprose signs an historical agreement

Copaprose and FIDES (Inter-American Federation of Insurance Companies) signed on 24 October 2007 a collaboration and cooperation agreement. This agreement aims to develop cooperation relationships of a technical, cultural and services nature. The relationship will be effective through the adoption of coordination and common action measures in areas of common interests for the two organizations.


Europe: Free Trade Agreements between the EU and India/Korea: Latest developments
  • Korea
The EU-Korea bilateral trade negotiations are going full speed as to conclude a Free Trade Agreement (FTA) as soon as possible. If progresses continue at the current pace, the conclusion of the negotiations is foreseen in a short period of time, comprised between the end of January until early March 2008. The next round of negotiations is planned for mid January. Korea is willing to conclude early with the EU as to keep pressure on the US congress to move ahead with ratification of the Korea US FTA (So called KORUS). Although everything remains conditional and need to be formalised in a final offer, Korea has accepted to grant to the EU similar conditions that the one that they have accepted to give to the US in the KORUS
  • India
Discussions are less advanced than with Korea but good progress had been made. India's commitment to the talks seemed improved. The third round took place in early December. On services the issue of the starting point for offers has not still been resolved.
  • Asean
Negotiations are still at a preliminary stage. The most recent meeting on 22-23 October was difficult, with differences on the nature of the region-to-region architecture of an agreement and on the level of ambition, particularly in relation to government procurement. It is acknowledged that the EU-ASEAN Regional trade negotiations will take longer that the two FTAs with Korea and India.


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