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Strategic process summary 1 Capital Markets, Insurance and Savings Division The Ministry of Finance, Israel Strategic process highlights July 2003.

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Presentation on theme: "Strategic process summary 1 Capital Markets, Insurance and Savings Division The Ministry of Finance, Israel Strategic process highlights July 2003."— Presentation transcript:

1 Strategic process summary 1 Capital Markets, Insurance and Savings Division The Ministry of Finance, Israel Strategic process highlights July 2003

2 Strategic process summary 2 Strategic plan of the Capital Market, Insurance and Savings Division The Capital Market, Insurance and Savings Division of the Ministry of Finance, has undergone a process of constructing a five-year strategic plan for the Division. The plan is required particularly in the light of the substantial changes that the financial markets, domestic and worldwide alike, have undergone and of the financial globalization process. The process was conducted by a leading strategic consulting company and included comprehensive analysis of financial supervisory authorities in the world, and meetings with relevant bodies of the financial markets in the banking, insurance and pension field, both in the public and the private sectors. A strategic plan for the Division was formed at the end of this process. The strategic plan comprises several elements, among them the definition of the Divisions vision and mission, and the determination of the Divisions objectives and goals for the coming years in its diverse areas of occupation (capital market issues were dealt with separately). We hope that the design and contents of the strategic plan will be of interest to you.

3 Strategic process summary 3 Table of contents Description of the process Goals of the process Methodology Identity of the Division Mission of the Division Divisions primary goals Supervisory policy Goals at the Division level Goals at the department level

4 Strategic process summary 4 Strategic process in the Capital Market, Insurance and Savings Division The strategic process in the Division includes two main components: 1.Preparation for the management workshop comprised of four elements: Interviews with the Division Management Internal work teams prepared position papers on Divisions agenda issues Interviews with external bodies – Bank of Israel, insurance companies, commercial banks, pension funds and insurance agents – a total of 9 interviews (with 13 interviewees) Worldwide models review – review of supervising bodies and methods in the financial markets in about 30 countries 2.Management workshop – 4 intensive days with Division management and consultant team participation, where issues central to the Divisions activity were discussed and decisions were taken.

5 Strategic process summary 5 Strategic process's goals Definition of the Division: Identity, mission, primary goals and supervision policy Next 5 years goals and missions 1 2

6 Strategic process summary 6 Methodology Divisions identity Next 5 years tasks primary goals Action Plan Feedback Next 5 years objectives and goals at the division level Divisions mission

7 Strategic process summary 7 Divisions identity Next 5 years tasks Primary goals Plan of Action External expectations from the Division World models Next 5 years objectives and goals at the Division level Divisions mission Identity Mission primary goals Market and authorities trends Convergence Organizational models Mission Supervision policy Domestic trends Failures and opportunities Goals Tasks for action Methodology Feedback

8 Strategic process summary 8 Identity definition – who are we? A government entity charged with the regulation and supervision of financial services in the State of Israel, particularly in the insurance, pension, savings and provident funds sectors

9 Strategic process summary 9 Divisions mission To assure the optimal level of financial security to the customers of the financial services in Israel which are supervised by the division

10 Strategic process summary 10 The divisions primary goals Customers side A variety of financial products, available to all and for every need Integrity, transparency and fair products pricing Customers awareness and comprehension for intelligent acquisition of financial products Financial institutions Securing the institutions stability to ensure solvency of public obligations Securing system stability System wide considerations Open, fair and competitive financial markets To promote, encourage and ensure:

11 Strategic process summary 11 Supervision policy Current situation High level of Divisions involvement in markets When normal market mechanisms fail and essential public interests are compromised, a high level of involvement on the part of the Commissioner is required Lower level of involvement requires Creation of market balancing mechanisms: Competition Creation of mechanisms for proper corporate governance Customers – class actions, customer organizations Creation of market balancing mechanisms: Competition Creation of mechanisms for proper corporate governance Customers – class actions, customer organizations Criteria for involvement level: Competition level Product complexity Evident failure in the market Potential for damage to the customer Availability of information Level of standards and regulation Criteria for involvement level: Competition level Product complexity Evident failure in the market Potential for damage to the customer Availability of information Level of standards and regulation Involvement level varies by sectors

12 Strategic process summary 12 Supervision policy Ramifications of involvement level reduction. Diagnosis of current versus desirable situation, based on two dimensions, supervision and standards depth: –First dimension – Supervision and control depth – represents the level of Divisions involvement in various markets. Represents distinction between direct and indirect supervision methods. –Second dimension – Regulations and standards depth – what is the extent of detail in standards and regulations. Diagnosis method: –Analysis of methods and supervision level in every sector –Definition of terms for reduction for Inspectors involvement in markets –Setting criteria for the desired level of involvement in every market In order to determine the optimal Divisions supervision policy, a detailed two dimensional analysis of the utility function, in general and in respect to every sector, is required.

13 Strategic process summary 13 Supervision policy Standards and regulations depth Supervision and control depth Direct, a-priori, examination of all products, aspects and issues Post factum, exceptions and special clauses examination High Low X X X XX Market perception Current status Home and vehicle Divisions perception Individual health (long-term care) Divisions perception Group health Divisions perception Home and vehicles USA Regulation Supervision Desired scope

14 Strategic process summary 14 Goals at the Division level

15 Strategic process summary 15 Goals prioritization criteria Prerequisite – goals compliance with mission and primary goals set Existing or anticipated severity of failure if division fails to act –Economic magnitude of failure –Size and type of public exposed to failure Impact of goal on other issues Level of market pressure to deal with the problem Feasibility – Divisions ability to fulfill the goal

16 Strategic process summary 16 GoalSubject/area No. Insurers stability/risk management – emphasis on life and pension insuranceLateral issues.1 Execution of recovery plans for old fundsPension.2 Adequate transparency and disclosure in insurance transactions, particularly in these stages: prior to transaction – customers side, claim phase – customers and insurers side Creation of customers awareness and understanding of insurance transaction Lateral issues.3 Fight against insurance fraudGeneral insurance.4 Comprehensive policy formation (including dealing with tax distortions in different channels) Savings channels.5 Enhancement of agents and consultants status and obligations regulationIntermediaries.6 Regulation of group long-term care insuranceHealth insurance.7 Procedures for claims processing in companies, particularly in general insurance Lateral issues - insurance.8 Definition of principles and suitable conditions for mergers in financial services markets in Israel Financial services convergence.9 Relationships with supervision systems in the worldGlobalization. 10

17 Strategic process summary 17 1.Maintaining the stability of insurance companies Risk-based supervision - through assessment of insurers risk management and his condition Corporate governance in an insurance company (position and training of the actuary, dynamic inspections of capital adequacy, board activity, internal audit, etc.) Update of professional standards for reserves setting Re-examination of capital requirements

18 Strategic process summary Pension Management and supervision – appointment of special administrator Operational umbrella – uniformity, clarity and equality Deficit reset – rights level and governmental assistance Balancing mechanism – deficit prevention safety cushion The test is in execution and in restoration of public confidence

19 Strategic process summary Transparency and adequate disclosure Adequate disclosure – proper scope, appropriate context (an adequate disclosure is not a full disclosure). Transparency – ways, means and what information channels are used to present the adequate disclosure, and its availability and friendliness. The more the adequate disclosure is fully applied, the sooner a transition from direct to indirect supervision can be achieved. Adequate disclosure is required during pre-transaction phase (marketing and selling), policy life and the insurance occurrence.

20 Strategic process summary 20 Insurance transaction information – transparency, availability and adequate disclosure – failures mapping and prioritization Information user Phase InsurerCustomer Underwriting information (customers characteristics) Policys terms and exceptions Reasonable awareness with respect to transactions essence (needs) Publications Comparative information regarding products, suppliers, distribution channels and their evaluation methods Pre-transaction Underwriting information updateTransactions fulfillment (validity) Status Value Policies and insurers switching options During transaction execution Claim Liability to the insured Procedures and methods for rights exhaustion Exit point Claims existence Claims details Liabilitys status and salvage value Procedures and methods for rights exhaustion at claim Rights fulfillment status and salvage value Claim (insurance occurrence) Claim settlement A-division

21 Strategic process summary Fighting insurance fraud Insurance frauds larger picture: false account at policy acquisition, claim inflation, fallacious report on circumstances of insurance occurrence, fabrication of occurrence Regulators involvement required because of: trade restrictions, privacy, public product Phase A: dealing with mandatory insurance Phase B: extension to remaining insurance lines

22 Strategic process summary Comprehensive savings policy formation Long-term savings encouragement policy redesign Harmonization and creation of priorities according to the new policy (for instance, tax distortions elimination) Transparency, elimination of ambiguity Channel friendliness and simplicity enhancement

23 Strategic process summary Agent's/consultants duties and status regulation Brokerage/consultancy separation and insurance consultant status regulation Model of insurance broker? Distribution channels expansion Training reform, certification and agents professional responsibility

24 Strategic process summary 24 Customer-agent-insurer relations triangle (brokers) – goals and priorities PriorityGoal A-division Agents/consultants duties and status regulation evolvement (including analysis and regulation of specific types, such as: captive agent, independent broker and special broker) A-division (lateral issues) Creation of basic awareness and comprehension among customers (ability to make the right choice), through education and information A-division (lateral issues) Ensuring simple, transparent and fair procedures for dealing with claims, especially in general insurance, in the companies A-area Products availability improvement/ distribution channels expansion and regulation B Creation of objective mechanisms for claim/settlement management (courts and alternative mechanisms) B Encouragement of development of simple and comprehensible (for the customer) products B To ensure companies fair conduct, while the companies maintain adequate disclosure towards the customers BCreation of commissions structure without conflict of interests

25 Strategic process summary 25 Brokers - status Customers welfare hurt Purchase product UnsuitablePrice too high Wrong quantity The problem Solutions options Customer 1.Doesnt understand product 2.Ignorant in conduct vis-à-vis the insurer The company 1.Doesnt know how to handle the customer 2.Does not entirely believe the customer Customer and insurer are agent dependent Why? Simple and manageable shelf products Means of settlement management process Customers awareness (making the right choice) Responsibility taking by the companies Sale Claim management Commissio n structure Availability -at POS Product simplicit y Fairnes s Procedure simplicity Possible outcome SA* IA* DA* Confidence building and anxiety reduction Expenses reduction Complaints and conflicts examination mechanisms (courts and others) Agent Enforcement Education Adequate disclosure Objective sales counseling Insurance consultant Objective settlement counseling Settlement agent * DA –Dependent Agent ; * IA –Independent Agent ; * SA – Special Agent

26 Strategic process summary Group long-term care insurance regulation Market structure: most of the policies – group policies (sick funds – 3.5 million insured) The flaw: long term need, but no obligation for continuity Required: finding the right balance between availability level and the need for continuity

27 Strategic process summary Claims settlement processes Fairness in claim settlement: enforcement Transparency: process simplicity, consulting mechanisms for the insured, comprehension of the process

28 Strategic process summary Financial services convergence Convergence: financial service production or distribution by an institution which customarily does not deal with this Worldwide: widespread phenomenon in Europe, beginning of cooperation between banks and insurance in the US The conflict: effectiveness enhancement against centralization enhancement Current situation: relations between banks and insurance companies

29 Strategic process summary Globalization In the long term: analysis of the integration of Israeli financial markets into a large economic bloc Examination of the required adaptations for financial services marketability enhancement, transparency, regulation Cooperation with international bodies – relevant professional elements in international organizations who are dealing with issues related to the Division

30 Strategic process summary 30 Goals at the area level

31 Strategic process summary 31 Pension area – goals and prioritazation PriorityGoal A-division Execution of old pension funds recovery plan A-division (will be dealt with within the savings channels framework) Resolution of tax system distortions A-area Rectification of existing corporate governance distortions Managerial purity Ownership structure balancing (trade unions) A/BCentralization reduction B Completion of the new market regulation B Transparency BFacilitating a real choice of fund for the customers C Improvement of professionalism and level of knowledge

32 Strategic process summary 32 Provident funds – goals and prioritisation PriorityGoal A-areaDealing with potential conflict of interests in funds management A-area Codification completion BCentralization reduction BProper management of risks embedded in the high level of fund fluidity

33 Strategic process summary 33 Life insurance – goals and prioritisation PriorityGoal A-area (will be dealt with within the lateral issues on divisional level) Ensuring proper integration of changes in this insurance line, especially insurance companies stability in the life insurance area, through indirect supervision tools A-area (will be dealt with within the savings channels framework on divisional level) Dealing with life insurances inferiority vis-à-vis pension annuity B Product structure transparency and adequate disclosure B Enhancement of customers awareness of the cost and implications of policy elements

34 Strategic process summary 34 General insurance – goals and prioritisation PriorityGoal A-division Fight against insurance fraud A-division (will be dealt with within lateral issues framework) Fairness in claims settlement A/B Dealing with market flaws which cause above normal product prices in several segments: mandatory vehicle, health, homes (mortgages) B Policies market regulation (not admitted, not certified (group, overseas, health))

35 Strategic process summary 35 Health insurance – goals and prioritization PriorityGoal A-division Group long-term care insurance regulation A-areaRegulation of retroactive underwriting B Regulation and reduction of insurance duplication BDealing with market flaws which cause above normal prices

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