Tak­ing the long view

Reg­u­la­tory projects and plans of Le­banon’s In­sur­ance Con­trol Com­mis­sion

Executive Magazine - - SPECIAL REPORT -

The task of im­prov­ing the Le­banese in­sur­ance sec­tor through reg­u­la­tory in­stru­ments, fi­nan­cial su­per­vi­sion and in­creas­ing gov­er­nance has been pur­sued by the In­sur­ance Con­trol Com­mis­sion (ICC) at the Min­istry of Econ­omy and Trade (MoET) for the past 15 years, with grow­ing vigor and ever-in­creas­ing ac­tiv­ity. To ob­tain an up­date on the ICC’s views and projects, Ex­ec­u­tive con­ferred with Na­dine Hab­bal, the act­ing ICC com­mis­sioner. (Due to spe­cial cir­cum­stances, this in­ter­view was con­ducted via email).

Can you up­date our read­ers on the rolling out of third-party li­a­bil­ity cov­er­age against ma­te­rial dam­ages in mo­tor in­sur­ance? Has a standard con­tract tem­plate for cov­er­age of ma­te­rial dam­ages and bodily in­jury un­der one pol­icy been ap­proved?

The ICC is launch­ing a project [this month] to or­ga­nize a frame­work for [Mo­tor Third-Party Li­a­bil­ity In­sur­ance], in­clud­ing bodily in­jury and ma­te­rial dam­age cov­er­age. The project will be con­ducted with the sup­port of a team of ex­perts from the World Bank who will com­mence their en­deav­ours by meet­ing a num­ber of key stake­hold­ers in the mar­ket. Over the course of this project, the ICC will con­sider a num­ber of op­tions re­lated to the pos­si­ble or­ga­ni­za­tion of this [in­sur­ance]. Ma­jor con­sid­er­a­tions will be the anal­y­sis of def­i­ni­tions and lim­i­ta­tions of var­i­ous cov­er­age, the ex­clu­sions, claims man­age­ment and re­cov­ery pro­cesses, and the im­ple­men­ta­tion of a cen­tral­ized risk data­base to en­hance the un­der­writ­ing ca­pa­bil­i­ties of in­sur­ance com­pa­nies. In this ini­tia­tive, the ICC will build on the ex­pe­ri­ence it gained re­gard­ing mar­ket prac­tices from its re­cent on-site vis­its with in­sur­ance com­pa­nies and bro­kers.

The anal­y­sis fo­cuses pri­mar­ily on how a ma­jor earth­quake could im­pact the fi­nan­cial con­di­tion of the in­sur­ance com­pa­nies op­er­at­ing in the sec­tor

How about the de­sign of a standard pol­icy for med­i­cal in­sur­ance, with man­dated min­i­mum prices and min­i­mum ben­e­fits?

The ICC is con­tin­u­ing its in­ves­ti­ga­tion into mar- ket and in­ter­na­tional prac­tices with re­gards to med­i­cal in­sur­ance, and will con­sider ac­tion in due course. In this re­spect, the ICC has dual ob­jec­tives in mind; while it in­tends to shield pol­i­cy­hold­ers from po­ten­tially harm­ful prac­tices, it is also se­ri­ously con­sid­er­ing ways to help in­sur­ance com­pa­nies com­bat the un­fair and il­le­gal com­pe­ti­tion com­ing from co­op­er­a­tive funds who are not al­lowed to mar­ket med­i­cal in­sur­ance prod­ucts to the pub­lic. A re­cent warn­ing was sent to these funds, the im­pact of which is ex­pected to un­fold in the com­ing pe­riod.

Are there new de­vel­op­ments from a reg­u­la­tory per­spec­tive in re­la­tion to in­sur­ance pools for earth­quake risk, oil and gas risks, or any other pools?

The ICC is in the process of up­dat­ing its anal­y­sis on the risk of earth­quakes in Le­banon. The anal­y­sis fo­cuses pri­mar­ily on how a ma­jor earth­quake could im­pact the fi­nan­cial con­di­tion of in­sur­ance com­pa­nies op­er­at­ing in the sec­tor. Along the same lines, the risk man­age­ment prac­tices im­ple­mented to mit­i­gate this risk are [be­ing] scru­ti­nized. The anal­y­sis has another tier cov­er­ing unin­sured house­holds; this is an area where ma­jor losses can be in­curred with­out any ex­ist­ing hedge.

In their lat­est Fi­nan­cial Sec­tor As­sess­ment Pro­gram (FSAP, re­leased this Jan­uary), the World Bank and In­ter­na­tional Mone­tary Fund men­tioned con­sol­i­da­tion as a mea­sure that could help cre­ate larger pools of re­sources in the Le­banese in­sur­ance sec­tor and at­tract in­ter­na­tional groups. What is the ICC’s re­sponse to this as­sess­ment and to in­dus­try re­quests for cen­tral bank sup­port for in­sur­ance M&As through soft loans and other in­cen­tives? Do you re­gard the re­cently ap­proved ac­qui­si­tion of Le­banese in­surer Al It­ti­had al Watani by NASCO as a pos­i­tive sign for the in­dus­try’s de­sire to con­sol­i­date?

Cor­po­rate gov­er­nance re­mains a ma­jor con­cern for the ICC, and a chal­leng­ing area to ad­dress given the his­tor­i­cal con­text, as a large num­ber of com­pa­nies are fam­ily-owned

In or­der to en­hance the uti­liza­tion of cap­i­tal and the qual­ity of the ser­vices ren­dered to pol­i­cy­hold­ers, and to re­duce the de­struc­tive com­pe­ti­tion on prices, the ICC is work­ing on in­cen­tives to en­cour­age com­pa­nies to merge in a healthy con­text. Soft loans spon­sored by the cen­tral bank would be an ideal sce­nario, pro­vided the money is in­vested to build ca­pac­ity in needed ar­eas such as risk man­age­ment, pric­ing, and gov­er­nance. The ac­qui­si­tion of Al-It­ti­hadAl-Watani by NASCO Hold­ing is cer­tainly a step in the right di­rec­tion. A num­ber of com­pa­nies in the mar­ket may not be sus­tain­able in the long run with the present setup; they must re­al­ize it, and seek al­ter­na­tives to en­sure they will re­main in busi­ness in the com­ing years. The FSAP opined that the in­sur­ance sec­tor faces “struc­tural chal­lenges” to its de­vel­op­ment and voiced sev­eral rec­om­men­da­tions. The as­sess­ment called mod­ern­iza­tion of the in­sur­ance law a “pre­con­di­tion for strength­en­ing the ICC’s ef­fec­tive­ness.” The FSAP also pro­posed re­place­ment of the Na­tional In­sur­ance Board with a con­sul­ta­tive process and ef­fec­tively sug­gested le­gal changes to se­cure op­er­a­tional in­de­pen­dence for the ICC and up­date the scope of its ac­tiv­i­ties. Do you agree with these per­spec­tives and pro­pos­als? The facts speak for them­selves. In the last 18 months, the ICC in­tro­duced the first con­trols and fi­nan­cial re­turns on bro­kers, con­ducted on-site in­spec­tions at car regis­tra­tion sites and fi­nan­cial ser­vices in­sti­tu­tions across Le­banon, took ac­tion against un­li­censed en­ti­ties sell­ing in­sur­ance prod­ucts, started a process to re­view in­sur­ance prod­ucts in the mar­ket, opened com­mu­ni­ca­tion chan­nels with the As­so­ci­a­tion of In­sur­ance Com­pa­nies of Le­banon (ACAL) and Le­banese In­sur­ance Bro­kers Syn­di­cate (LIBS) and ac­tively in­volved them in its process to de­sign reg­u­la­tory re­forms, and much more.

Notwith­stand­ing le­gal mod­ern­iza­tion, the reg­u­la­tor needs to as­sert its role with tan­gi­ble and use­ful ac­tion; the fact is that the strong­est leg­is­la­tion would re­main use­less if it were not trans­lated into ac­tion that left a pos­i­tive im­pact on the sec­tor. On the other hand, no one would op­pose a reg­u­la­tor de­ter­mined to ful­fill its mis­sion and serve the best in­ter­ests of pol­i­cy­hold­ers and share­hold­ers, even if its ac­tions were not ex­plic­itly stip­u­lated in the law. Re­plac­ing the Na­tional In­sur­ance Board with a con­sul­ta­tive process is a pos­si­ble so­lu­tion that mit­i­gates the risk of po­lit­i­cal dead­lock, but it is not the only one. What are the ICC’s plans in re­la­tion to im­pos­ing cor­po­rate gov­er­nance reg­u­la­tions on in­sur­ance providers, and what le­gal method­ol­ogy do you en­vi­sion for the im­ple­men­ta­tion or en­force­ment of gov­er­nance man­dates on Le­banese in­sur­ance providers? Cor­po­rate gov­er­nance re­mains a ma­jor con­cern for the ICC, and a chal­leng­ing area to ad­dress given the his­tor­i­cal con­text, as a large num­ber of com­pa­nies are fam­ily-owned. The ICC is ad­dress­ing this is­sue us­ing a risk-based ap­proach on a case-by-case ba­sis, and the sec­tor is co­op­er­at­ing.

It should be stated that com­pa­nies should not sit back and wait for the reg­u­la­tor to give them in­struc­tions on how they should best con­duct their busi­ness. Cor­po­rate gov­er­nance is not a mat­ter of su­per­vi­sion but a fun­da­men­tal re­quire­ment for the long-term sus­tain­abil­ity of any busi­ness, let alone in­sur­ance. It should be stated that a num­ber of play­ers in the mar­ket have im­ple­mented ad­vanced gov­er­nance and ex­tracted sig­nif­i­cant ad­van­tages from it in terms of per­for­mance and gen­eral busi­ness con­duct.

You have re­vised the ICC’s logo and iden­tity in 2016. What is your mes­sage with the new logo?

This is a step to­ward an ICC that will be­come an in­de­pen­dent su­per­vi­sory body with its own in­ter­nal gov­er­nance, in line with the in­ter­na­tional trend for in­sur­ance reg­u­la­tory bod­ies. Le­banon has a long in­sur­ance history, and the po­ten­tial to reach a stage where the sec­tor plays a ma­jor role in the na­tion’s econ­omy is large. The ICC’s aim is to be a pri­mary ac­tor in this trans­for­ma­tion.

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