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Conference on Insurance on the Threshold of the 3 rd Millenium Bratislava, 13 May 2011 OECD Perspectives.

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Presentation on theme: "Conference on Insurance on the Threshold of the 3 rd Millenium Bratislava, 13 May 2011 OECD Perspectives."— Presentation transcript:

1 Conference on Insurance on the Threshold of the 3 rd Millenium Bratislava, 13 May 2011 OECD Perspectives

2 OECD OECD has a long history on insurance issues –Insurance Committee established in 1961 as part of foundation of OECD 50 years ago –Complements Committee on Financial Markets –Observers (e.g., IAIS, IAA) and the private sector –Working Party of Governmental Experts on Insurance Originally, solvency regulation and supervision in OECD... Recently, liberalisation, crisis response, accession –Working Party on Private Pensions Created in 1998 to reflect rising importance of pensions Insurance and Private Pensions Committee (IPPC)

3 OECD OECD is changing… –Growing in size – now 34 member countries Chile, Estonia, Israel, and Slovenia the newest members Current accession process with Russia –Engaging more directly with key global partners (EE) Brazil, China, India, Indonesia, and South Africa Countries in South East Asia –Seeking greater policy impact –OECD becoming very active in G20 process Investment, commodity price volatility, capital controls, financial consumer protection, tax havens, etc

4 OECD Perspectives Some lessons from the crisis: –Insurance increasingly playing a critical role in the financial system and the economy Increasing role of risk transfer function versus financial intermediation function in modern financial systems Role of financial guarantee insurance in supporting the crisis -- enhanced credit status of structured products Credit default swaps – new forms of financial “insurance” Trade credit insurance – useful risk management function, but aggravated impact of the crisis on the real economy Need to be aware of correlation between “insurance risks” and macroeconomic and financial risks

5 Lessons from the crisis –Stabilising role of insurance sector Insurers, as institutions, generally weathered the crisis well, and arguably played a stabilising role Conservative regulation, lower leverage, prudent and liquid investments, longer-term horizon, etc However, crisis response introduced pressures –Credit downgrades on corporate debt –Prolonged low interest rates –Low-growth environment –Continued competitive pressures –Sovereign risk

6 Lessons from the crisis Other lessons (see OECD 2010 Crisis Report) –Need for enhanced ongoing surveillance Including macroeconomic linkages/systemic risks –Corporate governance in the financial sector –Convergence in regulatory framework, including solvency, for internationally active insurers EU efforts having a global impact; IAIS work underway –Regulation of group/conglomerate structures –Resolution mechanisms for the insurance sector Need for greater authorities and power –Financial education and literacy

7 Selected issues Touched upon by Julia… Surveillance Insurer corporate governance Financial education and consumer protection Policyholder protection schemes Financial regulation and institutional design …from the perspective of recent OECD activities

8 Surveillance Insurance market surveillance and statistics –Enhancing surveillance efforts (e.g., special report on the impact of the crisis on the insurance sector, 2010) –Enhancement of OECD annual insurance statistics exercise – Global Insurance Statistics (GIS) Long data series, back to 1983, insurance and reinsurance Expanded data collected in response to financial crisis – now include key balance sheet and income data Expanding range of countries participating in the exercise –SEA a priority region; seeking to expand to other regions Further improvements expected going forward

9 Surveillance –First OECD-Asian regional seminar on insurance statistics (Kuala Lumpur, Malaysia, September 2010) Second seminar to be held end 2011 /early 2012 in SEA –First OECD newsletter on insurance markets to be published this June/July –Seeking greater international collaboration and input on insurance sector statistics

10 Governance Insurer corporate governance –Review of OECD Recommendation on Guidelines for Insurers’ Governance (2005) Governance structure (board, auditors, actuaries), internal governance mechanisms, and relationship with stakeholders –Joint work conducted with IAIS Joint survey of insurers and supervisors; roundtable (2008) Joint Issues Paper on corporate governance (July 2009) –Elaboration of an expanded set of Guidelines Public consultations in fall 2010 Expected final approval by OECD Council on May 19

11 FE and FCP Financial education and consumer protection –International Network on Financial Education (INFE, at Over 70 countries involved, global meetings –PISA exercise (2012) Programme for International Student Assessment (PISA) –Review of implementation of OECD good practices on financial education and risk awareness in 2011-12 –G20 workstream on financial consumer protection

12 FE and FCP –G20 workstream on financial consumer protection Two strands of work: i.Contribution to FSB report on options to enhance consumer protection – Report to cover polices related to consumer credit: e.g. mortgages, credit cards, personal loans – Delivery of report to Leaders at November 2011 summit ii.Development of common on consumer financial protection – Consensus high-level principles across the financial sector – Delivery to G20 conference in October (Paris) CMF task force on financial consumer protection –First meeting 6 th April 2011 –OECD and non-OECD countries

13 FE and FCP Expected elements of common principles –Importance of FCP »Reflecting national circumstances, culture, markets –Integration »Trilogy approach: access/education/protection –Fairness –Disclosure –Financial education –Basic protection rights –Competition –Accountability –Advice –Enforcement –Redress

14 Policyholder protection schemes –Element of consumer protection and resolution framework –Fact-finding, comparative study OECD and selected non-OECD countries Comparisons with banking and occupational pensions sectors Examination of moral hazard and cross-border aspects –Question: if moral hazard an issue, why do most policy protection schemes offer unlimited protection (co-insured)? –Finalisation expected in June 2011

15 Financial regulation & institutional design Financial regulation –OECD Recommendation on a Policy Framework for Effective and Efficient Financial Regulation (2009) Financial landscape Policy objectives Policy instruments Institutional design Review Follow up work on institutional design

16 Institutional design Some tentative thoughts… –Institutional design important -- operationalises government’s policy and regulatory approach and establishes perimeters of financial regulation –Challenges: Multiple functions of financial system Multiplicity of products, institutions, and systems Linkages with other sectors and international linkages Rapid evolution and innovation

17 Institutional design –Recall: forms of regulation 1.Institutional 2.Functional (product, activity or broad function) 3.By objective (or “regulatory function”) …in reality, a mixture of approaches –Proposal  connection between form of regulation and institutional design Financial claims (“promises to pay”) – basis for analysis –Offsettable or not –Tradeable or not Nature of financial claim arguably determines appropriate regulatory approach

18 Tradeable financial claims Non-tradeable, offsettable financial claims Non-tradeable, non-offsettable financial claims Exchanges, ATS Clearing systems Dealer networks Clearing systems Exchanges Bank deposits Insurance policies Mutual funds (1) Restricted equity Structured notes Forwards Swaps Futures, options Offsettable payment orders Structured products Debt securities, Mutual funds (2) Shares DNS RTGS FINANCIAL CLAIMS INSTITUTIONAL REGULATION FUNCTIONAL REGULATION

19 Institutional design –Linkage between financial claim, regulatory approach, and policy objective Institutional regulation  prudential control –Non-tradeable, non-offsettable Institutional and functional  systemic risk reduction –Non-tradeable, offsettable Functional  Market conduct, integrity, and other objectives relevant to effective operation of function –Tradeable –Implications for institutional design Major gap: the middle –securities regulators or CBs? Other implications: e.g., serious attention needs to be paid to structure of “securities” products

20 Other work Catastrophic risks –High-Level Advisory Board on the Financial Management of Large-Scale Catastrophes Risk awareness, CAT-linked securities, hazard mapping Global conferences: India (2007), Thailand, (2009) Quantification of catastrophe losses and exposures –OECD questionnaire Chile –2010 Recommendation on Good Practices on Mitigating and Financing Catastrophic Risks

21 Other work Contribution of insurance markets and private pensions to growth –Roundtable held in December; roundtable in June Policy issues related to ageing, pensions, and long-term savings and the pay-out phase –IPPC to focus on the issue of annuities Technical seminar in Russia, June 21-22

22 50 th Anniversary Celebrations in Mexico City, Mexico –6-10 June, hosted by CNSF and CONSAR –WPPP (6 June), IPPC (9-10 June) –IOPS, AIOS, ASSAL –Special seminar on annuities and pensions (8 June) –High-level roundtable on the contribution of insurance and pensions to economic growth (9 June) –Roundtable on insurance markets in Latin America (10 June)

23 Thank you Timothy Bishop (IPPC coordinator) Mamiko-Yokoi Arai (guarantee schemes, Russia) Cécile Vignial (catastrophic risks) Jean-Marc Salou (statistics)

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