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Session 6: Panel on Consumer Protection

Session 6: Panel on Consumer Protection. Jeffery Yong IAIS Secretariat Regional Training Seminar IAIS-ASSAL San Salvador, 24 November 2010. Agenda. The importance of consumer protection International standards Examples of market abuses Developed market Emerging market Summary.

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Session 6: Panel on Consumer Protection

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  1. Session 6: Panel on Consumer Protection Jeffery Yong IAIS Secretariat Regional Training Seminar IAIS-ASSAL San Salvador, 24 November 2010

  2. Agenda • The importance of consumer protection • International standards • Examples of market abuses • Developed market • Emerging market • Summary Session 6: Panel on Consumer Protection

  3. Tangible Products Immediate use of product Warrantee to repair or replace faulty products Can shop around for best deal Insurance Future (uncertain?) benefit Not possible to identify ‘defects’ Information asymmetry between consumers and insurers Insurance is different – sound regulation is important Session 6: Panel on Consumer Protection

  4. Potential areas for market abuses • Investment-linked products – variable charges • With-profits products – non-guaranteed future bonuses Discretion • Hidden charges – non-/misleading disclosure • Acquisition costs – misaligned incentives Opaqueness Sales practices • Policy churning – poor policy value • Automatic enrolment • High surrender penalties Session 6: Panel on Consumer Protection

  5. Poor market conduct can threaten financial health of insurance companies Session 6: Panel on Consumer Protection

  6. Agenda • The importance of consumer protection • International standards • Examples of market abuses • Developed market • Emerging market • Summary Session 6: Panel on Consumer Protection

  7. ICP 25 Consumer protection The supervisory authority sets minimum requirements for insurers and intermediaries in dealing with consumers in its jurisdiction, including foreign insurers selling products on a cross-border basis. The requirements include provision of timely, complete and relevant information to consumers both before a contract is entered into through to the point at which all obligations under a contract have been satisfied. Essential criteria: • Act with due skill, care and diligence • Establish policies on fair treatment of consumers and ensure compliance (systems and staff training) • Seek information to assess insurance needs before giving advice/ concluding contract • Provide appropriate and timely information (product: benefits, obligations, risks and charges; other : conflict of interest) • Effective complaints handling through simple, easily accessible and equitable process Session 6: Panel on Consumer Protection

  8. Guidance Paper on Public Disclosure by Insurers Session 6: Panel on Consumer Protection

  9. Agenda • The importance of consumer protection • International standards • Examples of market abuses • Developed market • Emerging market • Summary Session 6: Panel on Consumer Protection

  10. Market conduct also cause for concern in developed markets Mortgage endowment Precipice bonds Payment protection insurance Travel insurance Session 6: Panel on Consumer Protection

  11. Statistics – UK Financial Ombudsman Service Session 6: Panel on Consumer Protection

  12. Emerging market experience – critical year illustration Session 6: Panel on Consumer Protection

  13. …led to adverse public reactions Session 6: Panel on Consumer Protection

  14. Misleading advertisements tested financial literacy and sophistication Session 6: Panel on Consumer Protection

  15. Agenda • The importance of consumer protection • International standards • Examples of market abuses • Developed market • Emerging market • Summary Session 6: Panel on Consumer Protection

  16. Conclusion - key challenge is striking the right balance Moral Hazard Consumer Protection Session 6: Panel on Consumer Protection

  17. Thank you for your attention. Any questions/ comments? jeffery.yong@bis.org www.iaisweb.org Session 6: Panel on Consumer Protection

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