Strengthening Incentives for Compliance through Certification, Ratings, Liability, Insurance...
11
Strengthening Incentives for Compliance through Certification, Ratings, Liability, Insurance requirements A review of possible instruments, strengths, limits, potential pitfalls Florentin Blanc World Bank Group Amman, 3 June 2014
Strengthening Incentives for Compliance through Certification, Ratings, Liability, Insurance requirements A review of possible instruments, strengths,
Strengthening Incentives for Compliance through Certification,
Ratings, Liability, Insurance requirements A review of possible
instruments, strengths, limits, potential pitfalls Florentin Blanc
World Bank Group Amman, 3 June 2014
Slide 2
2 Reaching the goals of regulations (safety, health,
environmental protection etc.) requires operators to comply with
rules, norms Key question is: how to improve compliance in
particular from a risk-focused perspective: compliance with crucial
norms, in high risk objects etc. Control, inspections cannot be
universal and even when they take place, they cannot always ensure
compliance Looking for other drivers of compliance (and drivers of
the desired goals: safety, health etc.) is necessary including
looking at leveraging the private sectors strengths in a for profit
perspective Strengthening incentives for compliance goals and
outline (1)
Slide 3
3 Possible tools/instruments include: Mandatory certification
of processes, machinery, products Extended liability (can be
combined with mandatory insurance) Rating schemes (with published
ratings) Voluntary certification and other voluntary quality
schemes Different tools have different costs, strengths, limits,
risks Used generally in different contexts/situations lessons from
existing experience have been insufficiently spread so far
Strengthening incentives for compliance goals and outline (2)
Slide 4
4 Heavy instrument: essentially makes controls/inspections far
more universal on a given type of goods, premises, machinery etc.
by transferring the costs and resources entirely on the private
sector Used for instance in the European Union for a range of goods
(electrical or pressure equipment, medical devices), machinery
(lifts) typically reserved for high-risk situations where large
number of facilities/products and significant technical complexity
pose a serious challenge in terms of direct control by the state
Supposed to yield a high level of confidence in safety outcomes
enabling in particular trade development (-> EU Single Market)
Costly/burdensome instrument with some limitations and important
conditions required to be effective Mandatory certification
(third-party conformity assessment) (1)
Slide 5
5 Cost for private sector (buyers of certification) is
significant it creates a captive market for providers of
certification Certification providers have an incentive to avoid
liability risks by encouraging gold plating (as much safety as
possible) Can give illusion of 100% reliability which never exists!
sloppy certification work can happen, and real crooks are hard to
catch! Conditions of possibility/effectiveness both in terms of
legal requirements and of infrastructure Mandatory certification
(third-party conformity assessment) (2)
Slide 6
6 Very important conditions of applicability/effectiveness
Liability mechanism both for operators, and certification providers
(to give a strong incentive to comply or check) Insurance
requirement both for operators, and certification providers (to
cover losses which exceed their capacity to pay) Reliable
accreditation and authorization of conformity assessment providers
Credible enforcement can include an effective 2 nd level control
(state institution supervising the conformity assessment providers)
and must include effective implementation by the court system of
liability provisions Strong insurance market as an underpinning of
the system Mandatory certification (third-party conformity
assessment) (3)
Slide 7
7 Logic: using market mechanisms and not mandatory control with
liability over an extended time period providing the incentive for
compliance (economic operator will have to cover the costs) Role of
insurance: ensuring that operators do not escape liability through
insolvency providing underpinning and trust in the system Used for
instance for construction safety norms in France Offers
considerable flexibility, fluidity in the market, low
implementation costs for the state Requires effective insurance
market, enforcement through courts Downsides: need to wait for
compensation (or buyers also need insurance), problems may show up
with delays only, gold plating possible to avoid liability risks
etc. Extended liability and related insurance
Slide 8
8 Logic: using market mechanisms to make control more effective
ratings are given following inspection visits, and their potential
impact on consumers (good ratings increase sales, bad ones scare
off buyers) means incentive to comply is stronger Mostly used in
food safety (Los Angeles, Denmark, UK, China) display of scores can
be mandatory or not (in the latter case, usually only good scores
are displayed, but consumers can access ratings on line) Powerful
incentive for compliance but works only if controls are credible
and can potentially be abused Is more of an additional lever for
controlling agencies rather than an alternative does not change
really the costs issue Rating schemes (with published ratings)
Slide 9
9 Logic: a recognized label or voluntary certificate/rating
gives greater recognition to economic operators, which should then
result in increased sales (and/or ability to charge higher prices,
get more investment etc.) Main issue is credibility and visibility
of these schemes if consumers, importers, investors etc. do not
know/trust them, they will not be useful Such schemes are often
victim of insufficient enforcement which means they can have
initial success in terms of market impact but then fail in terms of
safety, health etc. and eventually decline Schemes such as organic
certification for food in the EU, US, which is voluntary but
underpinned by regulation could be an interesting example for other
sectors/issues Voluntary schemes certification, ratings, quality
labels
Slide 10
10 Certification, rating and other schemes can be powerful
drivers of compliance and be more flexible or more effective etc.
than usual inspections in certain circumstances They also can have
significant costs direct costs (certification, insurance) and
indirect ones (gold plating) These different schemes can only be
effective given certain legal and institutional conditions
(liability and insurance requirements, insurance markets,
enforcement through the court system, credibility of inspectors,
reliability of accreditation system, quality of second level
regulation etc.) Thus they are important instruments but often
complex to implement and by no means one size fits all, silver
bullets Elements of conclusion and lessons learned
Slide 11
Thanks for your attention Contact: [email protected]@ifc.org
Further information on inspections work in the WBG:
www.wbginvestmentclimate.org/publications