General Comments
GFIA commends the IAIS for a thoughtful paper. A Policyholder Protection Scheme (PPS) is a last-resort mechanism that can play a valuable consumer protection role when supervisory regime safeguards are insufficient. The paper provides a useful overview of the features and functions of a PPS, while acknowledging that specific features need to take into account the legal and regulatory systems and culture of each jurisdiction. The paper recognises that solvency regimes do not create a zero-failure environment and recognises that, just as balance is needed in creating a viable solvency regime, so too, is balance needed in designing a PPS that does not cause distortions in the marketplace. In developing this paper, it is clear that efforts have been made to reflect other international publications, such as OECD's Policyholder Protection Schemes: selected considerations, released earlier this year, for the sake of consistency.
Specific Comments
Costs
A number of issues and risks (e.g. moral hazard, possibility of arbitrage, market concentration, cross-border and group issues) are discussed in some length in the paper as well as options to mitigate them. The issue of cost, however, is mentioned only briefly in paragraph 22 which states "Jurisdictions should also weigh the costs of a PPS against the benefits, bearing in mind that these costs will ultimately be passed on to policyholders and could affect the competitiveness of member insurers."
It is important that a balance be struck to ensure insurers can offer affordable, yet sufficiently safe, insurance products. Given the importance of this balance, GFIA would suggest that paragraph 22 be slightly modified and that its point be incorporated into paragraph 5, and GFIA has provided possible additional language in the attached.
Impact on developing countries
While the description of existing PPSs and case studies is useful, concern was expressed that this reflects a developed world perspective and, as such, the paper may not sufficiently consider the role and costs of a PPS in developing countries.
European Union references
There is no EU legislation on PPS. In a number of example boxes (e.g. under paragraph 36, 58, 68, 70, 81 and 86), individual EU member countries are cited. However, in a few instances, the example references are to the EU rather than specific countries. This could be misleading. It is recommended that these be changed. GFIA provides specifics in the attached document.
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© GFIA - Global Federation of Insurance Associations
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