Stiff penalties of a $10 million fine, plus ten years’ jail, as well as a $20 million fine, are proposed for individuals and entities respectively committing insurance fraud. These measures are part of new insurance laws to regulate and return confidence to the sector following the Clico meltdown. A 294-clause bill, presented by Government in Parliament yesterday, involves sweeping changes for the industry, including mandatory provision for insurance representatives to be properly trained and certified.
Finance Minister Larry Howai, outlining the bill during yesterday’s Senate session, said it required a three-fifth special majority vote. Because of the depth and complexity of the changes to repeal and replace insurance legislation of the 1980s—a complete overhaul of the system—and since the bill has far-reaching effects Howai said its proposals would be examined by a Joint Select Committee of Parliament.
“This bill is an unmistakable demonstration of Government’s commitment to eliminating risks and promoting a stable financial system and greater financial protection for citizens,” Howai added. He said the global recession and the CLF crisis have shown how vulnerable citizens could be if regulation of the financial system were not implemented. The bill, which expands the powers of the inspector of insurance companies and the Central Bank, is geared also to address allegations of abuse by the public.
Howai said the Inspector’s office would have the power to request information from companies. Another new aspect would involve scrutiny of companies with various subsidiaries and the soundness of operation, particularly if operating on an inter-connective basis.
Howai explained: “If you are selling cars, bread and insurance, the inspector will have the right to be able to find out what’s happening in the bread company if in some way it impacted on the insurance company...to the extent that there are related party transactions and the company may be financing the operations of another aspect. Those kinds of connectedness create the potential for contagion, so the inspector will have the right to go in.”
Another provision on consolidated supervision allows the inspector access to information and that office would also be able to examine the structure of conglomerates. The bill prohibits people convicted of fraud or money laundering, or those who have been on the board of companies in receivership or bankruptcy in the last ten years, from serving on the board of an insurance company or being an officer without Central Bank approval.
It also mandates that directors must be fit and proper for office according to certain prescribed criteria. Howai said Government needed to ensure prudent, good judgment was the hallmark of any decisions made in the sector. The bill mandates new reporting obligations for insurance company board members, including informing the inspector of any risk immediately, informing Central Bank of their departure from the board and the reasons for it and the total remuneration package of directors.
A mandatory catastrophe fund for companies dealing in property insurances is also listed. Such companies will have to manage funds overseas. The Central Bank will also have to approve those wishing to own an insurance company. Audit teams will be mandatory and will also have new duties and responsibilities. The bill also introduces a standard actuarial valuation methodology to deal with balance-sheet risk and establish a benchmark for performance.
On fears the legislation might force some companies to close, Howai said the life insurance sector would be able to deal with the changes, while non-life companies might require some more time to do so. “One of the things potentially you might see coming out is some mergers as companies try to meet the requirements of the legislation,” he added. Separate laws were being formulated or pensions, he added.
Howai said the insurance amendments were 12 years in the making and he sometimes despaired at the length of such situations where T&T’s competitiveness was concerned, especially since developments occurred overnight. NM Senator Terrence Deyalsingh said the PNM offered no resistance to the bill’s aims and objectives. He said he hoped Central Bank would be given the necessary backbone, based on law and leadership, to enforce the legislation.