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Sesión 6Protección del Consumidor
XXI Asamblea Anual de ASSALXI Conferencia sobre Regulación y Supervisión de Seguros en
América Latina y Seminario de Capacitación IAIS-ASSAL
Santiago Chile, 20 de Abril de 2010
Takao Miyamoto, Secretaría de la IAIS
English
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Agenda
1. Background– Need for Regulation– Market Conduct and Prudential Supervision
2. Intermediaries– Roles and Types
– International Framework (ICP)
3. Consumer Protection– Typical Problems with Consumers
– International Framework (ICP)
4. Other Issues
Scope
What is Market Conduct?
Consumer Needs
Insurance Products
Dealing with existing & potential policyholders and beneficiaries in selling & handling of insurance products & services and in providing information to such parties.
Dealing with existing & potential policyholders and beneficiaries in selling & handling of insurance products & services and in providing information to such parties.
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Essence of Consumer Issues
• Modern society has become more and more complex.
• Imbalance/Asymmetry between consumers and companies.
– Information gathering – Technical knowledge– Analytical ability– Negotiation power
• Potential adverse impacts– Companies may take advantage.– Consumers may stop/reduce purchase.– Vicious spiral for whole industry/economy?
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Rationale for Market Conduct Supervision
• Problem is more acute for insurance products.• Insurance products are difficult to understand and
evaluate for consumers.– Intangible– Prepayment of premiums and future (uncertain?) benefits– Complex legal contract (e.g. coverage, pricing, process for
filing a claim, cancellation)– Contract terms determined by insurance companies
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Complete laissez-faire policy may not work.Room for public sector involvement to protect consumers.
Complete laissez-faire policy may not work.Room for public sector involvement to protect consumers.
Market Conduct & Prudential Supervision
Consumer protection
Market conduct supervision
Monitoring of insurer - consumer relationship in sales, claim handling etc.
Prudential supervision
Monitoring of financial soundness of insurance companies Promotion of efficient and stable markets
Market conduct and prudential supervision are two sides of the coin.
Market conduct and prudential supervision are two sides of the coin.
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(Direct) (Indirect)
Interaction
Market conduct and prudential supervision could interact with each other.
Market conduct and prudential supervision could interact with each other.
Poor market conduct
Damage financial strengths– Reputation
– Supervisory sanctions– Hidden liabilities
Poor financial strengths
– Incentive to deceive to improve financial conditions
Wrong market conduct
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Example - Japan
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• Large number/amount of inappropriate payments– Lack of governance, systems, expertise etc– Some were intentional to boost profits
• Series of supervisory actions– Request for reporting– Issue of administrative orders for business improvement
and/or suspension
(http://www.fsa.go.jp/)
Insurance Core Principles (ICP)
• Provide globally-accepted essential benchmark for regulation and supervision of insurance sector.
• Provide basis for evaluating insurance legislation, and supervisory systems and procedures.
Markets Conduct and Consumers
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ICP 24Intermediaries
ICP 27 Fraud
ICP 26InformationDisclosure
ICP 25Consumerprotection
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Agenda
1. Background– Need for Regulation– Market Conduct and Prudential Supervision
2. Intermediaries– Roles and Types
– International Framework (ICP)
3. Consumer Protection– Typical Problems with Consumers
– International Framework (ICP)
4. Other Issues
Role of Insurance Intermediary
• Insurance companies distribute their products in various ways, including direct sales to customers.
• But more common is through intermediaries.
Consumers
Insurance companies
Intermediaries
– Advertising– Sales– Premiums collection– Assistance in accident– Claim payment– Cancellation– Renewal
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Types of Insurance Intermediaries
• Brokers– Represent customers in dealing with insurance companies– Independent and not tied to insurance companies
• Agents– Represent insurance companies– Conduct business on behalf of insurance companies– The relationship of an agent to insurance companies could
be exclusive or work with more than one
Insurance intermediaries, as well as insurance companies, have to be adequately supervised.
Insurance intermediaries, as well as insurance companies, have to be adequately supervised.
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ICP 24: Intermediaries
The supervisory authority sets requirements, directly or through the supervision of insurers, for the conduct of intermediaries.
The supervisory authority sets requirements, directly or through the supervision of insurers, for the conduct of intermediaries.
Essential criteriaIntermediaries must be licensed or registered. have adequate knowledge and good reputation. have sufficient safeguard in handling client’s money. disclose their status (e.g. brokers vs. agents) to customers.Supervisors take corrective actions where necessary. are able to act against unlicensed/unregistered
intermediaries.
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Agenda
1. Background– Need for Regulation– Market Conduct and Prudential Supervision
2. Intermediaries– Roles and Types
– International Framework (ICP)
3. Consumer Protection– Typical Problems with Consumers
– International Framework (ICP)
4. Other Issues
Inappropriate Trade Practices (1)
• Marketing and Sales– Use advertising & sales materials and mass-marketing
activities that are false or deceptive– Induce sales through kickbacks or rebates– Sell products through inadequately trained intermediaries– Sell consumers more coverage than they need– Misrepresent product’s coverage, rates, terms or benefits– Fail to provide full and accurate illustrations showing how
costs and benefits may change with future changes in interest rates and other variables
– Make unfair or incomplete comparisons to induce policyholders to replace current policy
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Inappropriate Trade Practices (2)
• Underwriting– Use policy forms that have not been filed with supervisory
authority (if required) – Use intermediaries who are not properly licensed in
respective jurisdiction– Rescind policies for insignificant misrepresentations on
application– Refuse to insure applicants simply because they have
been rejected by another insurance company– Terminate policy because of submission of claim– Discriminate based on judgment not facts
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Inappropriate Trade Practices (3)
• Claims handling– Pay or offer to pay less than reasonable amount– Refuse to communicate status or outcome of claim
investigation– Fail to adopt and follow reasonable guidelines for handling
claims and other benefits– Misrepresent relevant facts and coverage provisions– Compel claimants to sue to get a proper settlement
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ICP 25: Consumer Protection (1)
The supervisory authority sets minimum requirements for insurers and intermediaries in dealing with consumers in its jurisdiction, including foreign insurers selling products on a cross-border basis.
The supervisory authority sets minimum requirements for insurers and intermediaries in dealing with consumers in its jurisdiction, including foreign insurers selling products on a cross-border basis.
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The requirements include provision of timely, complete and relevant information to consumers both
– before a contract is entered into – through to the point at which all obligations under a
contract have been satisfied
The requirements include provision of timely, complete and relevant information to consumers both
– before a contract is entered into – through to the point at which all obligations under a
contract have been satisfied
ICP 25: Consumer Protection (2)
Essential criteriaInsurers and intermediaries must act with due skill, care and diligence. have policy, systems and trainings on fair treatment of
customers. seek information to assess needs before giving advice or
concluding a contract. provide appropriate and timely information (e.g. risks,
benefits) handle complaints through simple, easily accessible and
equitable process.
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Agenda
1. Background– Need for Regulation– Market Conduct and Prudential Supervision
2. Intermediaries– Roles and Types
– International Framework (ICP)
3. Consumer Protection– Typical Problems with Consumers
– International Framework (ICP)
4. Other Issues
Other Important Issues
• Customer information– Insurance entities have sensitive private information.– Importance of back office operation (vs. interface with
customers).
• Cross border issues– Could be more problematic than domestic transactions.
• Moral hazard– Balance between consumer protection and moral hazard.– Not to protect everything but to encourage well informed
decisions.– Customers need to be well educated to protect their
interests.
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ICP 25: Consumer Protection (3)
Advanced criteriaInsurers and intermediaries must set rules on handling customer information.Supervisors give information to public about cross border offering and
warn customer when necessary. promote consumers’ understanding.
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