Inclusive Insurance 2014 Ulaanbaatar, April 16, 2014

Transcription

1 Inclusive Insurance 2014 Ulaanbaatar, April 16, 2014 The value and role of insurance regulators to protect the market - Promoting sound development of the insurance market through supervision/regulation encouraging insurers self-responsibility and voluntary efforts Kazumasa Fukada Managing Director The General Insurance Association of Japan 1

2 1. Public Nature of Insurance (Starting point of supervision/regulation) Insurance = Business that has a highly public nature - It is said that general insurance has a highly public nature, which refers to the fact that it widely affects public interest. Necessity of policyholder protection 2. Role of the Insurance Industry Contributes to the economic development and wellbeing of society as social infrastructure Improves risk literacy among the public and enhances the resilience of society Utilizes accumulated funds in appropriate investment activities 2

3 3. Systems for Ensuring Sound and Proper Business Operations and Policyholder Protection in Japan 1) Insurance-related laws for ensuring proper business operations (The Insurance Business Act, and others) i. Insurance Business Act (Article 1: Purpose of the Act) in view of the public nature of the insurance business, to protect policyholders, etc. by ensuring sound and appropriate management of persons engaged in the insurance business and fairness of insurance solicitation, and thereby to contribute to the stability of the lives of citizens and to the sound development of the national economy. ii. Insurance Act iii. Act on Non-Life Insurance Rating Organization iv. Automobile Liability Security Act v. Act on Earthquake Insurance 3

4 2) Supervisory Authorities Financial Services Agency (FSA) Commissioner Planning and Coordination Bureau Inspection Bureau (On-site monitoring) Supervisory Coordination Division Bank Division 1 Bank Division 2 Supervisory Bureau (Off-site monitoring) Insurance Business Division Securities Business Division 4

5 Outline of Supervision Insurance Company Compilation of business reports Inappropriate management, Irregularities, etc. Submission of business reports - Regular report: twice a year. - Extra report: depending on the FSA s request On-site inspection or Off-site monitoring (Inspection Bureau) (Supervisory Bureau) -Submission of reform plan -Implementation of reform plan - Suspension of Activities FSA Understanding the state of business activities and Assets *It is important for the Inspection and Supervisory Bureaus to cooperate with each other properly so that on-site inspection and off-site monitoring work properly in a mutually complimentary manner. 5

6 3) Regulatory Systems for Maintaining Financial Soundness 1Solvency Margin Ability to absorb risks which exceed usual estimates Introduced in 1996 in Japan Supervisory methodology whereby the FSA: - regularly monitors the financial soundness of insurance companies Early Warning Measure - limits the financial difficulties of insurance companies in advance Early Remedial Action based on solvency margin ratio 6

7 Risks which exceed usual estimates Solvency Margin Ordinary Reserves Net Asset Special Reserves Others Usual Estimate Beyond Usual Estimate Stock market crash, Zero interest rate, Catastrophe, etc. Source: Financial Services Agency Risks which exceed usual estimates 7

8 How to calculate risk-based Solvency Margin Ratio? Formula Solvency Margin Ratio = (SMR) Solvency Margin ½ Risk Amount which exceeds usual estimates x 100 = Surplus over Ordinary Reserves ½{ (A+B)² +(D+E)²+C+F} x 100 Components of the Solvency Margin : Shareholders Equity (Net Assets) Special Reserves Unrealized Value of Assets Others Risks: A = General Insurance Risks B = Third Sector Insurance Risks C = Catastrophic Risks D = Assumed Interest Rate Risks E = Asset Management Risks F = Business Administration Risks Underwriting Risks 8

9 Early Remedial Actions Solvency Margin Ratio 200% or more 100% or more / Less than 200% 0% or more / Less than 100% Less than 0% Actions None (An insurance company is assessed to be in sound condition) (1) An insurance company is required to submit an improvement plan and is ordered to implement such a plan. (2) An insurance company is required to submit an improvement plan, is ordered to implement such a plan, and in addition, the following disciplinary measures are to be carried out: Prohibition or restriction of dividends and officer bonuses Reduction in costs and business expenses Closure of some offices, etc. (3) An insurance company is ordered to suspend its business partially or totally. 9

10 2Safety Net - Measures to Protect Policyholders - In the event of insurer insolvency Non-Life Insurance Policy-holders Protection Corporation of Japan (established in 1998) To give financial aid to the reliever insurance company or to take over the insurance contracts of a failed insurance company Membership: all general insurance companies A) Financial aid to reliever insurance company Failed Insurance company Insurance contracts Policyholders Transfer of insurance contracts Reliever Insurance Company Claim payments Application for financial aid Financial aid Non-Life Insurance Policy-holders Protection Corporation Prior contribution General Insurance Companies 10

11 B) Establish a subsidiary to take over insurance contracts Failed Insurance company Insurance contracts Policyholders Transfer of insurance contracts Bridge Insurance Company Claim payments General Insurance Companies Capital funding, financial aid Non-Life Insurance Policy-holders Protection Corporation Prior contribution C) Directly take over insurance contracts Failed Insurance company Insurance contracts Policyholders Transfer of insurance contracts Claim payments Non-Life Insurance Policy-holders Protection Corporation Prior contribution General Insurance Companies 11

12 4. FSA Policy: Better Regulation 1) Four pillars of better regulation i. Optimal combination of rule-based and principle-based supervisory approaches ii. Timely recognition of priority issues and effective response iii. Encouraging voluntary efforts by financial institutions and placing greater emphasis on providing incentives iv. Improving the transparency and predictability of regulatory action Close dialogue with financial institutions Publication of supervisory policies and inspection manuals 12

13 2) Annual Supervisory Policy for Insurance Companies, etc. for Program Year 2013 Making Better Regulation further embedded and enhanced Financial administration, if implemented through regulations only, may cause distortions in the regulatory regime and result in excessive control, which may negatively impact the real economy Improving the quality of supervisory administration while reducing regulatory costs on a medium to long-term basis by improving the self-discipline of financial institutions and its own capabilities as a supervisory authority i. Financial administration with high risk sensitivity ii. Financial supervision and administration from a citizen s and user s point of view iii. Supervisory responses with a forward-looking perspective iv. Supervisory responses which contribute to financial institution management self-improvement and better business judgment 13

14 5. GIAJ Roles 1) Objective To promote sound development and maintain reliability of the general insurance business in Japan, and thus contribute to a secure and safe society 2) Major activities i. Enhancing the dissemination and understanding of general insurance ii. Responding to consultation, complaints and disputes iii. Improving the quality of insurance business administration iv. Maintaining and improving the business environment of general insurance v. Preventing/reducing damage caused by accidents, disasters and crimes vi. The education and examination of agents and solicitors 14

15 3) Examples of the GIAJ s efforts under Better Regulation i. Setting guidelines - Codes of conduct - Guidelines on policy overviews and key information - Guidelines on making insurance policy wording more consumerfriendly - Guidelines for solicitation materials - Guidelines for proper insurance solicitation, and others ii. Promoting understanding of general insurance (Publications and brochures) - Fact Book General Insurance in Japan - General Insurance Buyers Guide - Policyholders Guide for Filing Claims with General Insurers (Communication and dialogue) - Meeting with consumer groups, consumer policy agencies and news media - Lectures for high school students, consumer consultant and others 15

16 iii. Agent education and examination - General Examination System for General Insurance Agents Providing industry-wide education on the knowledge necessary to properly explain key information on insurance contracts - General Insurance College Course To enable insurance agents to further advance their knowledge and expertise in order to properly advise customers Comprised of the Experts Course and Counseling Course iv. On answering inquiries, complaints and disputes properly - Acts as a designated ADR(*) organization established according to law (General Insurance Counseling & ADR Center) *ADR: Alternative Dispute Resolution - Established a PDCA cycle for improving businesses and operations within the industry based on consumer feedback, the GIAJ is active on its feedback mechanism to inform member companies of complaints and disputes received 16

17 6. Closing Important factors for a healthy insurance market - Good communication, cooperation and collaboration between the supervisor/regulator and the industry - Insurers self-responsibility and voluntary efforts, and incentives provided by the supervisory authorities for encouraging such efforts 17