LS&A

POLICYHOLDER PROTECTION SCHEMES:ARGUMENTS FOR

Lawrie Savage

The World BankInternational Insurance SymposiumOctober 2012Washington, DC

LS&A

“A WELL DESIGNED INSURANCE CONSUMER PROTECTION PLAN IS AN ESSENTIAL ELEMENT OF A WELL FUNCTIONING SUPERVISORY FRAMEWORK.”

LS&A

Lawrie Savage

“A WELL DESIGNED INSURANCE CONSUMER PROTECTION PLAN IS AN ESSENTIAL ELEMENT OF A WELL FUNCTIONING SUPERVISORY FRAMEWORK.”

LS&A

POLICYHOLDER PROTECTION SCHEMES

Part I: A well designed PPS

Part II: Why is the quotation true?

LS&A

POLICYHOLDER PROTECTION SCHEMES

Part I: A well designed plan

LS&A

1. Does not take away the incentive for consumers to place insurance with financially sound, well managed insurers.

POLICYHOLDER PROTECTION SCHEMES

A well designed plan:

LS&A

1. Does not take away the incentive for consumers to place insurance with financially sound, well managed insurers.

2. Can only be of benefit to insurance claimants, never to shareholders.

A well designed plan:

POLICYHOLDER PROTECTION SCHEMES

LS&A

1. Does not take away the incentive for consumers to place insurance with financially sound, well managed insurers.

2. Can only be of benefit to insurance claimants, never to shareholders.

3. Is only put in place when the supervisory system has been reasonably modernized and the industry is not in a state of near collapse.

A well designed plan:

POLICYHOLDER PROTECTION SCHEMES

LS&A

1. Does not take away the incentive for consumers to place insurance with financially sound, well managed insurers.

2. Can only be of benefit to insurance claimants, never to shareholders.

3. Is only put in place when the supervisory system has been reasonably modernized and the industry is not in a state of near collapse..

4. Must be designed to minimize costs because in the end it is the consumer who pays.

A well designed plan:

POLICYHOLDER PROTECTION SCHEMES

LS&A

5. Should cover small businesses as well as individual consumers.

A well designed plan:

POLICYHOLDER PROTECTION SCHEMES

LS&A

5. Should cover small businesses as well as individual consumers.

6. Is subject to supervisory oversight and cannot be modified without supervisory approval.

A well designed plan:

POLICYHOLDER PROTECTION SCHEMES

LS&A

1. Funded by industry members (assessment basis).

POLICYHOLDER PROTECTION SCHEMES

The Canadian general insurance PPS is an example:

LS&A

POLICYHOLDER PROTECTION SCHEMES

1. Funded by industry members (assessment basis).

2. 10 member board of directors, of whom 3 are independent of the industry.

The Canadian general insurance PPS is an example:

LS&A

POLICYHOLDER PROTECTION SCHEMES

1. Funded by industry members (assessment basis).

2. 10 member board of directors, of whom 3 are independent of the industry.

3. Policies and procedures are public, approved by Canadian regulators and can only be amended with regulatory approval.

The Canadian general insurance PPS is an example:

LS&A

POLICYHOLDER PROTECTION SCHEMES

1. Funded by industry members (assessment basis).

2. 10 member board of directors, of whom 3 are independent of the industry.

3. Policies and procedures are public, approved by Canadian regulators and can only be amended with regulatory approval.

4. Pays up to $250,000 per claim and up to 70% of unearned premiums (to maximum of $700).

The Canadian general insurance PPS is an example:

LS&A

POLICYHOLDER PROTECTION SCHEMES

1. Funded by industry members (assessment basis).

2. 10 member board of directors, of whom 3 are independent of the industry.

3. Policies and procedures are public, approved by Canadian regulators and can only be amended with regulatory approval.

4. Pays up to $250,000 per claim and up to 70% of unearned premiums (to maximum of $700).

5. Prefund of some $46 million (vs total premium of $66 billion, i.e. less than 1% of one year’s income).

The Canadian general insurance PPS is an example:

LS&A

POLICYHOLDER PROTECTION SCHEMES

6. Formed in 1988 so 24 years of experience.

The Canadian general insurance PPS is an example:

LS&A

POLICYHOLDER PROTECTION SCHEMES

6. Formed in 1988 so 24 years of experience.

7. Has handled 21 insolvencies.

The Canadian general insurance PPS is an example:

LS&A

POLICYHOLDER PROTECTION SCHEMES

6. Formed in 1988 so 24 years of experience.

7. Has handled 21 insolvencies.

8. PPS subrogates to the estate of the insolvent insurer to the extent of amount paid to policyholder.

The Canadian general insurance PPS is an example:

LS&A

POLICYHOLDER PROTECTION SCHEMES

6. Formed in 1988 so 24 years of experience.

7. Has handled 21 insolvencies.

8. PPS subrogates to the estate of the insolvent insurer to the extent of amount paid to policyholder.

9. By far the majority of claims by number are able to be paid with little delay.

The Canadian general insurance PPS is an example:

LS&A

POLICYHOLDER PROTECTION SCHEMES

Part II: Why is the quotation true?

LS&A

POLICYHOLDER PROTECTION SCHEMES

1. Distribution of pain.

Why is the quotation true?

LS&A

POLICYHOLDER PROTECTION SCHEMES

1. Distribution of pain.

2. Provide social justice.

Why is the quotation true?

LS&A

POLICYHOLDER PROTECTION SCHEMES

1. Distribution of pain.

2. Provide social justice.

3. Avoid “innocent forbearance”.

Why is the quotation true?

LS&A

POLICYHOLDER PROTECTION SCHEMES

1. Distribution of pain.

2. Provide social justice.

3. Avoid “innocent forbearance”.

4. Industry reputation protected – key in emerging market environments.

Why is the quotation true?

LS&A

POLICYHOLDER PROTECTION SCHEMES

1. Distribution of pain.

2. Provide social justice.

3. Avoid “innocent forbearance”.

4. Industry reputation protected – key in emerging market environments.

5. Other beneficial activities of PPS.

Why is the quotation true?

LS&A

POLICYHOLDER PROTECTION SCHEMES

1. Distribution of pain.

2. Provide social justice.

3. Avoid “innocent forbearance”.

4. Industry reputation protected – key in emerging market environments.

5. Other beneficial activities of the PPS.

6. And what is the cost?

Why is the quotation true?

LS&A

Lawrie Savage

“A WELL DESIGNED INSURANCE CONSUMER PROTECTION PLAN IS AN ESSENTIAL ELEMENT OF A WELL FUNCTIONING SUPERVISORY FRAMEWORK.”