Using its one-seat majority, the government early Friday morning passed the sweeping Insurance Bill 2016 which fortifies a regulatory role for the Bank of Guyana and seeks to prevent a CLICO-type meltdown in the sector here.
While agreeing in the main with the bill, the opposition PPP/C wanted it sent to a Special Select Committee for further deliberations but the APNU+AFC government was not in favour of this.
Former Attorney General Anil Nandlall argued for more consultations and questioned whether the central bank is properly equipped to take up the responsibilities that it is now being tasked with. However, Minister of Finance Winston Jordan, who piloted the bill, insisted that enough consultation was done and that “we can consult and consult until the chickens comes home but no bill is a perfect bill.” He declared that the Bank of Guyana is ready to undertake its mandate but said even if this was not so, it should not prevent the bill from being passed.
In the end, after more than three hours of debate and six speakers, three in support of the bill being passed and three calling for it to be sent to a special select committee, the bill was approved just a few minutes after midnight with the 33 members of the government side voting for passage and 28 from the opposition voting for it to be sent to a committee.
Under the new bill, the Bank of Guyana can for the first time impose fines and penalties for failure to comply with directives and for other offences. According to the Explanatory Memorandum of the bill, Part IV says that any officer, director, actuary or auditor who has consented to an offence shall also be liable for that offence. A limitation of seven years applies to offences under this bill. This is significant as it may be aimed at sparing persons who might have committed offences associated with the CLICO (Guyana) collapse in early 2009. Billions deposited with CLICO (Guyana) were transferred to a CLICO subsidiary in The Bahamas and the money was eventually lost in Florida real estate.
Penalties are fixed for certain serious offences and discretion is provided to the Bank of Guyana in relation to others. The bill, which has to be signed into law, says that a systemic failure by an insurer which has the potential to cause widespread harm to policyholders would result in a much higher range of sanctions.
Under Part II of the bill, the explanatory memorandum says that the insurance supervisory function would be substantially funded by an assessment on direct written premiums, with the amount to be determined by the central bank. The assessment would be sufficient to cover the expected expenses of the supervisory office after allowing for fee income. The Act would also authorise the central bank to charge fees for various services, such as the issuing of licences.
Part III of the bill caters for an Appeal Board comprising three but not more than seven persons none of whom are active in the industry, but who would have knowledge of insurance matters. The appeal board would provide its ruling in writing within 60 working days of the appeal being received.
Part V of the bill deals with licensing and this mostly conforms with the existing law save, among other things, that the central bank will maintain a list of acceptable reinsurers and the insurer will be required to maintain acceptable risk management systems. The controlling shareholder, directors, officers, actuaries and auditors will need to satisfy fit and proper standards and the central bank may attach conditions to the licence on its issuance.
First responders
Under Part XI, insurers will be required to advise the central bank of changes in key personnel such as auditors and actuaries, and the bank will have the power to object to any such appointment if it believes that the subject person is not fit and proper. Part XIII of the Act requires insurers to be first responders to consumer complaints.
“Every insurer must establish policies and procedures for dealing with complaints and designate an officer to be in charge of complaint handling. The insurer must indicate on its web site and in response to enquiries, how to contact the complaint officer and to describe the procedures it has put in place for the handling of complaints,” the bill says.
The insurer has six weeks to probe a complaint and to either settle it or apprise the consumer why it can’t be resolved in their favour. The central bank can also investigate and if it believes that the complaint should be settled in favour of the consumer, the insurer is to be notified. However, the bill says that the central bank cannot compel the insurer to pay a particular claim or take any other action as these are matters that the court would ultimately have to decide. Prior to court action, a consumer can apply for a disputed claim payment to be heard by an arbitration board which would be set up by the central bank. The board would comprise one member selected by the consumer, one by the insurer and one picked by the central bank.
Part XIV of the Act introduces a statutory fund requirement to provide greater assurance that the insurance company would be able to meet its commitments. The mechanics of this fund will be spelled out in the regulations to be issued.
Under Part XV of the Act, the central bank can invoke “preventive and corrective” measures. In most cases an insurer would be entitled to 10 days advance warning if the central bank were contemplating statutory intervention and would have an opportunity to make written representations to the bank during that period. An exception would occur in emergency situations and the central bank would be able to act without prior consultation.
Part XVII of the bill pertains to the regulation of insurance agents and brokers. Among its provisions, the bill says that when a premium is paid to an intermediary, the intermediary is required to give the consumer a receipt which includes the name of the insurer. The premium is then deemed to have been received by the insurer. Under the Act, representatives of the central bank may visit any place of business of any licenced intermediary and inspect the records relating to the business carried out.
The government speakers, who along with Jordan included Minister of Business Dominic Gaskin and Minister within the Ministry of Finance Jaipaul Sharma, all cited the collapse of CLICO (Guyana), which resulted in hundreds of policyholders suffering, as an example of what the new bill seeks to prevent and aimed barbs at the then PPP/C government for not doing enough to prevent that situation. For their part, Nandlall and his colleagues, Charles Ramson Jnr and Irfaan Ali, who had to contend with a steady “where is the NIS money [a reference to the millions the insurance scheme lost in the CLICO collapse],” stated that the policyholders in Guyana were the least affected compared to those in other countries. The then PPP/C government had enabled payouts to the stranded CLICO policyholders.
Jordan described the bill as one that is major and very important but not new as its genesis was with the previous government, which “to their credit they had taken it to an advanced stage and when we came to power we took up the mantle and ran with it bringing it to this stage.”
“The objective of the bill is to promote the maintenance of a fair, safe and stable insurance market for the benefit and protection of policy holders by establishing a legal framework for insurance and insurance groups…,” the Minister said. He also stated that it will facilitate the monitoring and preserving of the safety and soundness of insurance, enhance the protection of policyholders and potential policyholders and contribute to the stability of the financial system in general.
Incomplete consultations
Nandlall, in his submissions, noted that the bill will be the “Bible” of the insurance industry until changes are made.
“As such we should ensure we have the best possible bill. The consultative process was not completed as [concerns by the] Insurance Brokers Association, an important stakeholder in the sector were not addressed,” he said.
He argued that in the bill the Commissioner of Insurance is being replaced by the central bank and questioned its capabilities to undertake its new responsibilities, while adding that he has not heard of resources being granted to the bank and that he does not believe it had adequate opportunity to familiarise itself with the added responsibilities it would have to undertake.
The bill, he said, has over 260 clauses and therefore it is “not the ordinary bill but the Bible of the insurance sector” and should go to a select committee.
Meanwhile, while agreeing that the bill was a significant and necessary piece of legislation, Ali said he believes that it should go to the committee as there are a lot of issues that need to be sorted out. He believes that the powers of the Governor of the central bank should be tamed under the bill and that the issue of insurance companies offering bonds has not been addressed. According to Ali, the Bank of Guyana did not respond to the queries raised by the Insurance Brokers Association and he believes at the level of the select committee the comments of the association could be assessed to see if some can be reflected in the bill.
However, Jordan, on the issue of consultation, even before it was raised by the opposition members, said that meetings were held with individual insurance groups and with the Insurance Association of Guyana and a member of the Institute of Chartered Accountants of Guyana, following which a first draft of the bill was introduced and shared with all the industry players. The Minister said in 2013 a meeting was held with all insurance participants to discuss the first draft and many objections were made and changes were proposed resulting in another draft which included some of the proposed changes. Further meetings were held with the insurance players in the same year, which according to Jordan shows the “wide consultation” the bill underwent. The bill was expected to be taken to the National Assembly in 2014 but then President Donald Ramotar’s prorogation and later dissolution of Parliament prevented this.
The Minister said between May last year and this point, the new administration held another set of consultations on the bill and another draft was presented to all stakeholders and consensus was reached, resulting in it being sent to the Attorney General’s Chambers for processing.
Gaps
Hammering home the need for the new bill, Jordan said a recent international assessment in May highlighted several gaps in the country’s insurance regulatory regime and stated “The insurance sector in Guyana is under-developed relative to its potential and compared to its neighbouring countries.” The gaps, which are dealt with in the new bill, included inadequate licensing and solvency margins, lack of regulatory requirements relating to governance, lack of risk management, shareholding eligibility requirement and absence of minimum capital levels.
According to Jordan, the bill provides for the empowerment of the regulator to share information with supervisors in a foreign country for lawful supervisory and regulatory purposes through an agreement between Guyana and that country to share information. The bill also allows the regulator to share information with any domestic regulatory agency for enforcement purposes.
According to the Minister, the bill follows international best practices for insurance regulations including a risk-based approach supervision, under which insurers with higher risk receive more stringent scrutiny and intervention. It is envisaged, the minister said, that the bill will replace those sections of the current insurance act that pertain to insurance issues but the sections that deals with pensions will be retained until a pension act comes into effects.
The explanatory memorandum of the bill said that key diagnostic findings of the insurance industry, supported by the World Bank, included that there was heavy competition which pushed down non-life premiums, a loss of confidence following the global credit crisis and the subsequent CLICO failure. The latter saw nominal domestic life insurance premiums drop by 80% over three years. The uninsurability of some major property risks in Georgetown was also noted.
The diagnostic also found that the current law/regulations and supervisory infrastructure would not be able to “withstand another (CLICO)-type situation.”
