Insurance Regulation in the Commonwealth Caribbean has emerged from custom, based on the principles and policies of the English Common Law. Insurance allows for the protection of an event or thing against risk of loss or damage, by another party, such as an insurance company, which agrees to compensate its equivalent in occurrence of the event.
The importance and relevance of its regulation, sourced in legislation, judicial decisions, and regulations issued by insurance commissions, are clearly shown in the protection of policyholders through provisions to maintain insurer solvency and the enforcement of sanctions in breach of these provisions. The need for insurance regulation arose in England from the collapse of large insurance companies in 1870 that required the financial assistance of the state.
Similarly, in the Commonwealth Caribbean, lack of or poor regulation has seen fluctuation in rates, liquidity and insolvency crises, and even bankruptcies of insurance companies that required government intervention. This had caused loss of state funds, severe effects on policyholders, and financial instability in states such as Jamaica, Barbados, the Bahamas, and Trinidad and Tobago in the mid-1990s, that affected the Gross Domestic Product (GDP), increased public sector debt, and slowed economic growth.
As such, insurance regulation has necessitated the legal framework of insurance (and regulation) legislation, to fill in the gaps that arise from the Common Law and to formally establish the stance of the legal system on insurance issues. (Fordyce v. American Life Insurance and Transport and Harbours Department, 1970)
Consequent to these crises, many states sought to implement financial commissions, such as the Financial Services Commission (Jamaica) and the Office of the Commissioner of Insurance (Guyana), to amend domestic legislation to include provisions to supervise and sanction insurance companies, and to introduce minimum standards of operation. There was also the introduction of a Draft Model Insurance Bill that sought to codify one Insurance Act in recognition of the need for convergence in the regulatory framework in the Caribbean.
These Acts, enforced through insurance regulatory bodies, have sought to make a significant impact in reforming the practices of the insurance sectors of the region, which significantly contribute to the economy, to protect the interest of policyholders and to ensure that insurance companies act in the best interests of the policyholders. When policyholders purchase insurance, they are charged a premium- the price for the insurance- and the premiums are combined into an “insurance pool”, which reinvested domestically and foreign, with capital on hand to pay claims made by policyholders.
However, this reinvestment, unregulated, can risk loss of the insurance pool, which translates into loss of the service paid for by policyholders. For this reason, the regulatory bodies are charged with supervising risk management, and corporate governance within insurance companies, through guidelines which clarify insurance legislation and the appropriate practices in policyholder protection. These guidelines include investment and loan regulations, solvency standards, penalties (usually fines) for breaches of the Act, and regular examination of the companies to ensure compliance.
Despite these measures, there still exists inadequate regulation, evidenced by the 2009 “bail-out” of CL Financial (Who’s guiding the CLICO bailout? , 2010), the parent company of Colonial Life Insurance Company (CLICO), in Trinidad and Tobago, which revealed the company’s liquidity problems. This insolvency also extended to CLICO branches in Guyana, Barbados and the Bahamas, and necessitated financial intervention by the governments to protect its citizens and the domestic economy.
These developments expose the shortcomings of the existing regulatory bodies, widely attributed as a factor behind today’s global financial crisis, which demand reforms to align the regulatory framework with that of international transparency standards, such as the International Association of Insurance Supervisors (IAIS). Insurance Regulation in the Commonwealth Caribbean is critical to the maintenance of the regional and domestic economic sector, and its absence could result in insurance companies potentially overreaching good practices, leading to insolvency, bankruptcy, and the breakdown of the economy.
Bibliography Anderson, L. (2006) Insurance Regulation in Jamaica: A Case Study of the Jamaican Experience, Caribbean Actuaries Association Conference. Bird, J. (2007). Bird’s Modern Insurance Law. London: Sweet & Maxwell. Fordyce v. American Life Insurance and Transport and Harbours Department, No. 2571 of 1970 (High Court of Guyana 1970). Maynard, P. (1992) Insurance Law Reform in the Caribbean, Caribbean Law Institute. Who’s guiding the CLICO bailout? (2010, September 19). The Trinidadian Guardian .