Redesigning The Insurance Industry - Part 2
Today we continue our review
of the Insurance Act, 1998 which has now been made effective. In the first
part last week we looked at the main provisions in the Act relating to
insurers which now have four months within which to register with the newly
appointed Commissioner of Insurance. As we noted last week, the current Act
goes well beyond the 1970 Act which it replaces and in today’s article we
address the provisions relating to brokers and ‘agents and other
intermediaries’ which are now more formally recognised under the new Act.
It is perhaps worth noting
that the new Act has different definitions of some of the more common terms
associated with the insurance industry. This suggests that the whole
exercise was more than mere updating and is considerably wider in scope. The
Insurance Association of Guyana may well consider a training programme to
educate industry participants on the more important changes brought about by
the Act. The penalties prescribed for offences under the Act are
considerably harsher than those under the former Act which in any case could
not have been effectively enforced in the absence of a Commissioner.
The Act provides that only
corporations (in Guyana terminology, incorporated companies) or partnerships
authorised by the Commissioner may carry on the business of insurance
broker. Any such entity in business at the date the Act comes into force has
to register with and be authorised by the Commissioner.
The filing fee for registration as a broker is $50,000.
There are some serious
conditions which must be met before the Commissioner registers a broker.
These include a minimum of ten million dollars of indemnity insurance; that
the company includes in its insurance business mane the words “insurance
broker” or “risk manager” in its name; the insurance business is
restricted to that of broking and activities directly ancillary thereto; the
applicant or any partner, controller or officer of the applicant is
The Commissioner is required
to prescribe forms for registration and renewal and also to issue a code of
conduct for brokers similar to a pro forma code set out in Schedule 4 to the
Act. The underlying objective of the code is the best interest of the public
by conduct of “utmost good faith and integrity” The standards which are
extremely high would challenge some of the more recognised professions will
require resources to enforce.
All insurance agents
including existing agents must register with the Commissioner and no person
may operate as an insurance salesman, sub-agent, adjustor, loss assessor,
insurance consultant or insurance surveyor unless registered with the
Commissioner under regulations issued by her. The Act allows for the
delegation of the responsibility for registering agents to the Insurance
Association of Guyana (IAG) but the IAG must have a programme of continuing
education for agents that is satisfactory to the Commissioner. It is worth
noting that several other professions do not have continuing education as a
While branches have some
peculiar treatment under the Companies Act, 1991 and the Income Tax Act, the
requirements and provisions of those Acts would seem to be unaffected by
section 97 of the Act which provides that an insurer incorporated in Guyana
whose business comprises acting as an agent for an external insurer shall be
deemed for the purposes of the Act to be a branch of the (external) insurer.
In order to protect the
consumer from any improper action by the agent, the Act provides that the
insurer i.e. the company is deemed to have received any premium paid to an
agent appointed by the insurer.
Pension Fund Plans
The Act includes some
important provisions for pension fund plans and their managers. It provides
that no person may establish or operate a pension fund plan in Guyana unless
the plan is registered. Existing plans have a period of three months within
which to register. The filing fee for the registration of a plan is $250,000
but the manager of more than one plan may consolidate his application and
pay a single fee. There is no fee in the case of self-administered plans for
fewer than twenty-five employees
The Act requires every plan
to invest in Guyana eighty percent of the plan's total assets. Where the
plan has invested in the common stock (ordinary shares) or long term debt of
a company in Guyana, then for every one percent of its assets so invested,
the eighty percent minimum may be reduced by one percentage point, up to a
maximum of a ten percentage point reduction. In other words, under no
circumstances must the plan invest more
than seventy percent of its assets overseas.
To prevent the Enron type
loss to pension fund members, the Act prohibits the investment of the assets
of a pension or provident fund in the equity, debentures or other evidence
of indebtedness of the employer or related company.
Each plan must be subject to
an independent audit annually and to an actuarial investigation every three
years. The Act prescribes the format of the Revenue Account and the balance
sheet which must be prepared and submitted to the Commissioner.
Conduct of Insurance Business
The Act makes it an offence
for an insurer, broker, agent, pension fund manager etc. to make any
statement, promise or forecast which is willfully misleading, false or
deceptive or which conceals any material information. This extends to
advertisements, circulars and booklets.
The Act deems an insurance
company to be a licensed financial institution under the Financial
Institutions Act (FIA), 1995 but only in relation to section 14 (restriction
on certain financial activities) and section 28 (conflicts of interest).
Section 14(1) of the FIA provides that no loan or advance should be granted
to any person in excess of twenty (20) percent of the capital base of the
insurance company. In addition, Section 14(3) provides that no unsecured
loan or advance greater than two percent of the capital base should be
granted to a shareholder owning more that 25% of the paid-up capital.
Section 28 requires any
director who is a party to a material contract or transaction; or who is a
director or officer of, or who has a material interest in or a material
relation to, any person who is a party to a material contract or
transaction, to disclose in writing the nature and extent of the material
interest or relation.
The Act deals in detail with
other issues such as acquisition of an external subsidiary, contracts for
long-term insurance, protection of policies, paid-up policies, surrender
values and non-forfeiture and associations of underwriters.
Protection of the consumer
is a critical focus of the new Act. It is clearly a very modern type of
legislation being introduced into a country of weak structures. Its
efficient operation will impose strict standards of compliance by industry
participants and will require a strong office of the Commissioner of
Insurance. The view in the industry is that the Commissioner is well
qualified but whether she will be given the resources to carry out her
mandate is an entirely different matter. It would be verily chaotic if the
office of the Commissioner were to become vacant at any time, a possibility
that must never be excluded in Guyana.
The language of the Act
suggests that it is an importation and it may give rise to disputes and
disagreements between the Commissioner and the industry players. The courts
and the legal profession will have to come to grips with some new terms and
concepts while there is a lot of work to be done by the consumer bodies.
Last week’s column raised
the troubling issue of the status of Commissioner and her office. The 1970
Act was clear that the office was a public office but this does not appear
in the current Act. Since the office is not a constitutional one and is not
an independent agency, then it is reasonable to assume that it is still a
public office. Hopefully, the Commissioner or the government will clarify
this not unimportant question.
Merry Christmas To All
Page contribution recognised
Christopher Ram, Business Page contributor was one of
the awardees at the Annual Presentation Dinner of the Georgetown Chamber of
Commerce & Industry. The award was “for a consistent effort to
sensitise and educate the business community via the electronic and print
media.” I came down to earth
when on seeing the award, my four year old Christelle asked me whether I
had won a race.