Redesigning The Insurance Industry (Part 1)
The Act goes well beyond its
predecessor the Insurance Act of 1970 which is now being repealed. It has
far broader objectives and it is also wider in its coverage. Whereas the
original Act had merely set “to provide for the regulation of insurance
business in Guyana and for purposes related thereto or connected
therewith” current Act adds as its objectives “the
promotion of competition in the insurance industry, the protection of
consumers” Falling within
the purview of the Act now are not only the insurance companies but brokers,
agents and other intermediaries and pension funds while the rules governing
insurance companies themselves have been made tougher.
The Act is part of the whole
package of financial and business legislation “recommended” by the IMF
and other international financial institutions for the restructuring of the
economy in return for support under various agreements. Other legislation
include the Companies Act, 1991, the Financial Institutions Act, 1995 (FIA),
the Securities Industry Act, 1998 and the Money Laundering (Prevention) Act,
2000. It is interesting to note that despite the fact that none of these
Acts came into effect immediately on enactment, we were generally unprepared
when they did. In this case the Commissioner-designate had been meeting with
players in the industry which should allow for greater compliance.
The entire Act is being
brought into force immediately and this is likely to place a strain on the
administrators as well as the industry. The Securities Industry Act was
brought into operation in stages which allowed first for the establishment
of the Council and later the effecting of the various sections. It appears
that because of different language used in the two Acts, it may not be
possible to have partial introduction of the Insurance Act. Some consistency
in drafting is surely desirable to contribute to the more orderly
introduction of detailed provisions particularly in cases where new concepts
The position of Commissioner
of Insurance under the 1970 Act had been vacant for some time but on this
occasion a Commissioner has actually been functioning before the new Act was
brought into force. This person appears to have won the confidence of the
insurance industry, a confidence which is likely to be tested as the she
enforces the rather stringent provisions of the Act.
As Commissioner she is
charged with the general administration of the Act under which the Minister
of Finance exercises wide powers and responsibility over the
Commissioner’s office. Not only is the Minister responsible for appointing
the Commissioner, but he can set the terms and conditions of work including
remuneration, dismiss the commissioner (with the consent of the President),
approve budgets in relation to the Commissioner’s office, receive annual
reports and present these to Parliament, make regulations under the Act,
appoint an insurance board, etc. For all practical purposes, the
Commissioner’s boss is in fact the Minister although the Commissioner is
required to keep proper accounts of money and to make reports to the
Minister which are required to be available to the National Assembly.
That we continue with this
type of legislation is truly regrettable as it allows for too much political
influence if not interference in the workings of what should be essentially
independent bodies, possibly compromising the professionalism of the holder.
Business Page also believes that it is time that we consider the creation of
a separate Financial Services Authority with responsibility for the
regulation and supervision of the entire range of financial services. It is
interesting to note that section 39 of the Act deem insurers to be licensed
financial institutions for purposes of section 14 (restriction on certain
activities) and 28 (conflict of interest) of the FIA.
The Bank of Guyana is of
course the supervising authority under the FIA and the Money Laundering
(Prevention) Act. A reconfiguration will allow the Bank to concentrate on
the critical monetary matters for which it is best suited.
Funding for the office will
come from a number of sources including levies, fees, fines and
appropriations from Parliament which may be supplemented by a general
assessment on the Industry. Section 14 of the Act authorizes the
Commissioner to make an annual assessment against “each insurer, insurance
broker, Association of Underwriters, and, manager of a pension fund” based
on the revenues of each of the entities. The Act requires that the accounts
be audited by an accredited auditor rather than specifically the Office of
the Auditor General and there must also be some doubt whether all
expenditure incurred has to be authorised by the National Assembly.
The Act provides for the
establishment of an Insurance Arbitration Board responsible for arbitrating
on any dispute or difference arising between a policy-holder and an insurer
or broker in relation to an insurance policy. The Act also makes provision
for the establishment by the Minister of
an Insurance Board of Review to hear appeals from any decision,
direction, or order of the Commissioner.
Registration of Insurers
The Act provides that only
companies or associations of underwriters registered with or and authorized
by the Commissioner may carry on insurance business in Guyana. As stated, it
does not appear to affect situations whereby a Guyanese resident in Guyana
goes off-shore for insurance under a contract made under the laws of another
country and under which the premiums and sum assured are paid outside of
Guyana. The fee for registration is $250,000 and the application must be
submitted along with several documents including incorporation documents, a
copy of the latest revenue-account and balance sheet, a copy of the latest
actuarial valuation report upon the financial position of the company or
association, a copy of the premium rate book in use for long-term insurance
business and specimens of the various standard forms of proposals and
policies to be issued in Guyana. Existing companies have two months in which
to apply for registration.
In order to be registered
under the Act, a deposit as prescribed has to be paid. In the case of
long-term insurance business the deposit is $5Mn. and in the case of general
insurance business the deposit is 20% the net premium income for each class
of insurance or $5,000,000, whichever is greater. The Act provides for
annual adjustment based on changes in the net premium income.
businesses are required to carry out once in every three years an actuarial
review of its financial condition, including its liabilities. No
distribution of a surplus may be allocated or paid unless the Commissioner
has approved presumably on the basis of the report of the actuary.
All companies are required
to establish and maintain a statutory fund in respect of each class of
insurance on the date of commencement of the business in that class or not
later than four months after the commencement of the Act. Long-term
insurance companies are required to place in trust in Guyana assets equal to
its liabilities and contingency
reserves less the amount deposited on account of the insurance business
in respect of its policy holders in Guyana. In the case of non-long-term insurance business, the amount to be placed in trust
in Guyana would be assets equaling its
liabilities and reserves.
Companies carrying on
long-term insurance business are required to have assets invested in Guyana
of not less than eighty-five per cent of its statutory fund. Schedule 3 of
the Act specifies the type of securities in which the assets of a statutory
fund may be invested.
The issue is whether there
are in Guyana sufficient securities for possible investment, whether they
provide adequate returns, are secure and will not cause any impairment which
could affect the viability of a fund. The authorities need to realise as
well that the changes required may take some time to effect.
An insurer other than an
external insurer shall at the expiration of each financial year prepare a
revenue account in respect of each class of insurance business carried on as
well as a separate profit and loss account (or income and expenditure
account if the long-term insurance business is not operated for profit) and
balance sheet in respect of long-term insurance business. Currently,
companies are not required to and generally do not prepare a revenue account
for each class of business and this has implications for accounting systems,
the separation of funds and the allocation of income and expenditure.
Financial statements are to
be presented to the Commissioner within six months of the relevant year end
which is the same period prescribed under the Companies Act.
Unlike the FIA, this Act
does not require the auditor to report whether there has been compliance
with its provisions but the Act will clearly affect the work of the auditor
and the profession expects to have some consultations with the Commissioner
on the application of the Act.
To Be Continued.