Proposed reform of ECCU Insurance and Pensions Market

Submitted by:
Financial Services Authority

In January 2016, the public in St Vincent and the Grenadines was informed of the proposed reform in the ECCU region of the Insurance and Pensions Market, through public consultations with the Steering Committee of this project, facilitated by the Financial Services Authority. The following provides an update on this initiative.

Following the financial crisis of 2008, regulators and policy makers in major economies have focused on making the laws governing financial institutions, and their supervision and enforcement, stronger.{{more}} These range from making capital requirements for insurance companies and other financial institutions more robust, such as in the Basel 2 and 3 Capital Accords, and establishing more effective rules to protect consumers, and regulate the conduct and behaviour of institutions.

In the Caribbean, the failure of the CL Financial group gained widespread attention, and the repercussions have resulted in enormous personal and economic cost. Citizens and companies in the Eastern Caribbean Currency Union (ECCU) had particularly high exposure to CL Financial’s flagship insurance companies – British American (BAICO) and Colonial Life (CLICO). The IMF estimated that the collapse represented 17 per cent of the ECCU’s GDP.

These failures brought into sharp focus both the importance, and substantial challenges, of securing co-operation and consistent responses across multiple borders, and of acting quickly and meaningfully when the resources of governments and regulators are especially stretched in the face of crisis.

In response to this crisis, in 2009, the Governments of the ECCU established a Ministerial Sub-Committee on Insurance, and a supporting Technical Core Committee, to provide strategic and technical advice to the Governments. The Governments not only implemented responses that began to address the impact on policyholders and the financial system, but also turned their minds to creating a stronger framework for insurance and pensions regulation in the sub-region. Important gaps were identified in the laws themselves, which, for example, contained few protections for consumers and a less than modern capital management regime. Also in issue was the need to ensure the agility and proper resourcing of regulators to effectively supervise both domestic and cross-border businesses, and to address urgent and complex issues when they arose.

Consultation with the industry and regulators began in 2011, and has been overseen by the Governments, working through the Monetary Council of the ECCB, and has led to a commitment to establishing a single insurance regulator and market within the ECCU. In essence, a single market provides for free movement of capital, goods and services through mutual agreement among sovereign countries. In this instance, insurance and pension service providers would be able to offer their services and products within the ECCU, under a uniform law and a single regulator.

The economic realities of the ECCU sub-region support such an approach, as do the successes of other regional initiatives, such as the OECS Secretariat, the Civil Aviation Authority, the Eastern Caribbean Central Bank, and a common stable currency. A similar path for the insurance and pensions sector has the potential to realize economies of scale and scope, and to benefit key stakeholders, ranging from consumers to the industry and governments. The earlier experiences also mean that we have the opportunity to learn from, and perhaps even improve on, those pioneering regional efforts.

For the insurance industry, it is expected that implementing a single market – which will be made up of a uniform law, and a single regulator – for insurance and pensions will result in better consistency, certainty and lower cost of business and compliance burden.

In establishing a single insurance and pensions regulator, it will be important to ensure that it is well-resourced, and independent. The new laws themselves are intended to be uniform across all participating territories, and more modern in their drafting and approach.

Importantly, for consumers, it is expected that there will be greater protection, both in ensuring more stability in the financial sector, and more favourable protection for customers of insurance and pension providers. With greater ease in operating across borders, over time consumers should also see benefits, including more choice of insurers and insurance and pension products.

Progress has been made in securing a single market, with several drafts of the new insurance law having undergone consultation and comment. A Steering Committee, comprising regulators, industry representatives and legal and insurance experts, has been established to oversee and progress the project

Consultations have been held through most of the ECCU, including here in Saint Vincent and the Grenadines, with only two territories remaining. These consultations have provided a platform for raising awareness for the project and receiving direct and important input from industry, the general public and interested stakeholders.

The next phase of the project will include completion of island consultations, finalization of the uniform law, and ratification by the ECCU countries of the agreement establishing the single market and regulator. The launch of the single insurance and pensions market and regulator for the ECCU is targetted for late 2017.

Historically, the path to advancing a regional co-operative agenda has rarely been smooth or free of challenge, as can be attested to in our region and as seen more broadly elsewhere. However, the economic and social challenges facing our small, under-resourced island states today, in an increasingly connected world, provides a uniquely compelling case for greater political, financial and economic solidarity. It is anticipated that the progress toward a single insurance and pensions market, and a more modern regulatory approach, will play their part in achieving these worthy objectives.