Business Page – December 22nd, 2002


Redesigning The Insurance Industry - Part 2 (Conclusion)

(continued)

Introduction

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.

Brokers

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 sufficiently qualified.

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.

Agents

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 mandatory prescription.

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.

Financial Institutions

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.

Other Issues

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.

Conclusion

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

Business 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.