1. Session 6: Panel on Consumer Protection Jeffery Yong IAIS Secretariat Regional Training Seminar IAIS-ASSAL San Salvador, 24 November 2010

2. Session 6: Panel on Consumer Protection23 Nov 2010 San Salvador Agenda 1.The importance of consumer protection 2.International standards 3.Examples of market abuses  Developed market  Emerging market 4.Summary

3. Session 6: Panel on Consumer Protection23 Nov 2010 San Salvador Insurance is different – sound regulation is important Tangible Products Immediate use of product Warrantee to repair or replace faulty products Can shop around for best deal Insurance Future (uncertain?) benefit Not possible to identify ‘defects’ Information asymmetry between consumers and insurers

4. Session 6: Panel on Consumer Protection23 Nov 2010 San Salvador Potential areas for market abuses Discretion Opaqueness Sales practices Investment-linked products – variable charges With-profits products – non-guaranteed future bonuses Hidden charges – non-/misleading disclosure Acquisition costs – misaligned incentives Policy churning – poor policy value Automatic enrolment High surrender penalties

5. Session 6: Panel on Consumer Protection23 Nov 2010 San Salvador Poor market conduct can threaten financial health of insurance companies Threat to financial position/ solvency Undermine confidence Tarnish reputation Unexpected liability

6. Session 6: Panel on Consumer Protection23 Nov 2010 San Salvador Agenda 1.The importance of consumer protection 2.International standards 3.Examples of market abuses  Developed market  Emerging market 4.Summary

7. Session 6: Panel on Consumer Protection23 Nov 2010 San Salvador ICP 25 Consumer protection Essential criteria:  Act with due skill, care and diligence  Establish policies on fair treatment of consumers and ensure compliance (systems and staff training)  Seek information to assess insurance needs before giving advice/ concluding contract  Provide appropriate and timely information (product: benefits, obligations, risks and charges; other : conflict of interest)  Effective complaints handling through simple, easily accessible and equitable process The supervisory authority sets minimum requirements for insurers and intermediaries in dealing with consumers in its jurisdiction, including foreign insurers selling products on a cross-border basis. The requirements include provision of timely, complete and relevant information to consumers both before a contract is entered into through to the point at which all obligations under a contract have been satisfied.

8. Session 6: Panel on Consumer Protection23 Nov 2010 San Salvador Guidance Paper on Public Disclosure by Insurers

9. Session 6: Panel on Consumer Protection23 Nov 2010 San Salvador Agenda 1.The importance of consumer protection 2.International standards 3.Examples of market abuses  Developed market  Emerging market 4.Summary

10. Session 6: Panel on Consumer Protection23 Nov 2010 San Salvador Market conduct also cause for concern in developed markets Mortgage endowmentPrecipice bonds Payment protection insuranceTravel insurance

11. Session 6: Panel on Consumer Protection23 Nov 2010 San Salvador Statistics – UK Financial Ombudsman Service

12. Session 6: Panel on Consumer Protection23 Nov 2010 San Salvador Emerging market experience – critical year illustration

13. Session 6: Panel on Consumer Protection23 Nov 2010 San Salvador …led to adverse public reactions

14. Session 6: Panel on Consumer Protection23 Nov 2010 San Salvador Misleading advertisements tested financial literacy and sophistication

15. Session 6: Panel on Consumer Protection23 Nov 2010 San Salvador Agenda 1.The importance of consumer protection 2.International standards 3.Examples of market abuses  Developed market  Emerging market 4.Summary

16. Session 6: Panel on Consumer Protection23 Nov 2010 San Salvador Conclusion - key challenge is striking the right balance Consumer Protection Moral Hazard

17. Session 6: Panel on Consumer Protection23 Nov 2010 San Salvador Thank you for your attention. Any questions/ comments? jeffery.yong@bis.org www.iaisweb.org