Offshore Insurance Supervision

Offshore Insurance Regulations

If one were to carefully consider the important role of insurance companies in our economies in terms of facilitating risk management within corporate households and other sectors, the demand to regulate the insurance sector and to ensure that firm policies and guidelines are adhered to and implemented would be far greater.

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This note is highlighted in the midst of a global economic recession and strengthened cross border insurance activity through offshore insurance companies, as the concerns of people, firms and organisations divert to achieving a strong sense of financial safety and security, lower portfolio volatility, and maximum risk coverage, along with privacy, reduced cost and currency diversification. In the offshore insurance sector, these, including sound legal frameworks, tax efficiency and flexibility, as features of offshore insurance companies have been essential in meeting the needs of customers and encouraging continued investment in offshore insurance companies.

A surge in the number of offshore insurance legislations internationally is therefore capable of mobilizing personal sector savings to across borders. Offshore insurance companies have created a versatile alternative to IRA’s (individual retirement accounts) and pension plans in light of the fact the offshore insurance companies offer long term contractual savings plans for covering risks and retirement planning. Like pension programmes, therefore, offshore insurance companies assume the important task of providing households with income during time of need and through annuities. Within the offshore insurance sector, offshore reinsurance companies further enable primary insurers to manage risk by spreading these risks. This constitutes one of the most important features of offshore insurance companies in terms of serving as a main channel for people’s finances, capable of influencing consumer behavior and the actual amount of funds that are saved or invested in local banks as savings by individuals, families and corporate citizens.

Having considered the foregoing, the need for offshore insurance supervision cannot be understated. For indeed, the effects of poor offshore insurance supervision be far reaching, given the extent of the offshore insurance sector and how widely spread people would have invested their monies through offshore insurance companies by taking on offshore insurance policies.

Offshore insurance supervision is thus something that is promoted by international agencies such as IOSCO, and is expected to be enforced by respective governments in jurisdictions where offshore insurance services are made available. The necessary laws and local supervisory committees need to be put in place and implemented not only to protected offshore insurance policy holders, but the reputation of the country as an offshore jurisdiction and the offshore insurance companies themselves.

In regulating offshore insurance activity and achieving adequate supervision, three conditions that must established in offshore jurisdictions are efficient financial markets, legal frameworks, policies and carefully thought out and implemented infrastructures for supervising the financial sector.; most of which are required under the Solvency II regime associated with sufficient financial resources, a proper system of governance, disclosure, regulatory requirements and adequate supervisory review process .

Once these are in place for the supervision of offshore insurance companies, the emphasis rests with the offshore insurance supervisory committees themselves to look after the interests of customers while ensuring that market integrity is upheld. Based on the principles established by the International Association of Insurance Supervisors (IAIS) in 1999, integrity, care, skill, diligence, prudence and disclosure of information to customers are among the main principles required of onshore and offshore insurance companies and intermediaries. These principles are to be supported by a sound relationship with regulators, that proper mechanisms for dealing with complaints are implemented, proper management and control procedures are followed, and there is no conflict of interest, which at the end places onshore and offshore insurance customers at the risk of being exploited or unfairly treated.

Critical to all of this is ensuring that offshore insurance customers are provided with all relevant information in writing, should be able to access all information before signing to any onshore or offshore insurance contract and be advised verbally in the absence of written information or upon having any doubt regarding an onshore or offshore insurance policy. This gives another reason for the need for regulatory mechanisms for offshore insurance companies simply because of the nature of offshore insurance policies, whereby insurers promise to guarantee certain benefits or indemnity in the event that certain events occur, provided that offshore insurance policy holders agree to meet certain obligations, most of which come in the form of premiums. Meanwhile, both onshore and offshore insurance prove complicated to understand by market participants.

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