2. SECP-PII Microinsurance Symposium Role of regulation and supervision Jules Gribble 29 November 2011

3. 2 Enterprise Metrics Agenda  My task  IAIS Insurance Core Principles  Role of supervisor  Microinsurance (MI) focus  Disclaimer: My views, not WB or SECP

4. 3 Enterprise Metrics World Bank mission  Assess demand and supply for MI  Assess current regulatory and supervisory status  With SECP develop MI regulatory and supervisory framework: ▪ Rules and regulations ▪ Accounting ▪ Policyholder protection

5. 4 Enterprise Metrics My task  Part of assessment of regulatory and supervisory status: ▪ Review current position against IAIS ICPs ▪ Provide input for overall review  IAIS = International Association of Insurance Supervisors  ICP = Insurance Core Principle

6. 5 Enterprise Metrics ICPs  26 ICPs (replacing prior set of 28) ▪ Approved 1 October 2011 ▪ See www.iaisweb.org  Globally accepted framework for supervision of insurance sector  Apply in all jurisdictions regardless of ▪ Level of development ▪ Type of product ▪ Services being supervised

7. 6 Enterprise Metrics Proportionality  Assessment should be appropriate to supervisory objectives  Principle of ‘Proportionality’: ▪ Supervisors may adjust some requirements and actions to reflect the nature, scale and complexity of individual insurers  Additional IAIS guidance for MI in progress  Achieving simplicity may require effort ▪ More than ‘simple’ product structures ▪ Need robust but simple processes

8. 7 Enterprise Metrics Coverage of ICPs  Presume appropriate preconditions  7 groups: ▪ Supervisor (1 - 3) ▪ Supervised entities (4 - 8) ▪ Supervisory processes (9 - 12) ▪ Prudential matters (13 - 17) ▪ Distribution and disclosure (18 - 20) ▪ Fraud and AML (21 - 22) ▪ Groups and macroprudential (23 - 26)

9. 8 Enterprise Metrics Review process  ICPs (26) ▪ Standards (233, average 9 per ICP) ▫ Guidelines (1,600, average 7 per Standard)  Assess standards, then ICPs: ▪ Observed ▪ Largely observed ▪ Partly observed ▪ Not observed ▪ Unable to assess ▪ Not applicable

10. 9 Enterprise Metrics Aspects to consider  Life / Nonlife  Regulatory / Supervisory ▪ Regulatory: Have powers and establish framework (laws, Rules etc). Intent ▪ Supervisory: Processes to administer framework effectively. Implementation  Standard / Micro insurance  Multiple issues in standards

11. 10 Enterprise Metrics Role of supervisor  Analogy: A game ▪ Supervisor: Referee ▪ Regulation: Formal game rules ▪ Supervision: Referee game in practice ▪ Industry: Playing teams ▪ Policyholders: Spectators  Supervisory regime ▪ Enabler - provides industry with opportunity ▪ Balance - care not to inhibit while retain control and protect policyholder interests

12. 11 Enterprise Metrics Standard / Micro insurance  Continuum, not disjoint Ref: IAIS_2007 Standard ins - used Under/Uninsured Micro ins Uninsurable through market Wealth

13. 12 Enterprise Metrics Comparison  Insurance risk the same ▪ Require grouping ▪ Avoid anti-selection ▪ Importance of insurance risk mitigation  Challenge: Operational changes ▪ All steps in ‘chain’ from policyholder to insurer and (possibly) back to policyholder ▪ Simplicity ▪ Robustness ▪ Group focus

14. 13 Enterprise Metrics MI – key ICPs  4 – Licensing  8 – Risk management and internal controls  17 – Capital  18 – Intermediaries  19 – Distributors  20 – Consumer protection

15. 14 Enterprise Metrics Supervisory interactions (Sup Int)  Need understand the value chain to have appropriate ‘refereeing’ that links are not broken or abused ▪ System fails at the weakest link  Starts and finishes with the policyholders ▪ Service providers positions need to be viable  MI based, long term, on simplicity, volume, group context, and consumer value

16. 15 Enterprise Metrics Sup Int: Roles User Distributor Manufacturer Policyholder MFI Insurer

17. 16 Enterprise Metrics Sup Int: Awareness User Distributor Manufacturer Policyholder MFI Insurer ??

18. 17 Enterprise Metrics Sup Int: Supervisor Public opinion SBP SECP User Distributor Manufacturer Policyholder MFI Insurer ??

19. 18 Enterprise Metrics Sup Int: Purchase & premiums Public opinion SBP SECP User Distributor Manufacturer Policyholder MFI Insurer ??

20. 19 Enterprise Metrics Sup Int: Claims management Public opinion SBP SECP User Distributor Manufacturer Policyholder MFI Insurer ?? Rs

21. 20 Enterprise Metrics Sup Int: Policy servicing Public opinion SBP SECP User Distributor Manufacturer Policyholder MFI Insurer ?? Rs

22. 21 Enterprise Metrics Sup Int: Business partnership Public opinion SBP SECP User Distributor Manufacturer Policyholder MFI Insurer ?? Rs

23. 22 Enterprise Metrics Sup Int: Perceptions & reputations Public opinion SBP SECP Reputational Risk User Distributor Manufacturer Policyholder MFI Insurer ?? Rs

24. 23 Enterprise Metrics SECP interest in entire ‘chain’  Insurance ordinance, 2000 (preamble)  Ordinance to regulate the business of the insurance industry ▪ To ensure the protection of the interests of the insurance policy holders and ▪ To promote sound development of the insurance industry...  Holistic ▪ Both insurance risks and all associated operational and business risks

25. 24 Enterprise Metrics Summary  Objectives of this WB project ▪ In independent assessment of the insurance supervisory regime ▪ Provide basis to enhance and address any issues identified  MI ▪ No specific recognition in law or insurance regulatory and supervisory regime ▪ Key distinctive aspects that need explicit recognition in supervisory regime. In progress

26. 25 Enterprise Metrics Contact details Jules Gribble, Director, Enterprise Metrics Phone: +61 408 127 624 Email: jules.gribble@enterprisemetrics.com.au