Strengthening Regulation and Supervision of the Insurance Sector in Lebanon
Project Development Objective (PDO)
The objective of this project is to develop a sound subsidiary regulatory framework for Lebanon’s new compulsory motor insurance, which will cover property damage. This project also aims to support development of risk-based supervision more broadly, specifically by establishing a supervisory ladder and by enhancing on-site inspection capacity. Both of these objectives will help expand insurance coverage and increase stability of the insurance sector in Lebanon.
Lebanon’s Ministry of Economy and Trade and its Insurance Control Commission (ICC) are responsible for supervising the country’s insurance sector. The ICC recently sought the support of the FIRST (Financial Sector Reform and Strengthening) Initiative for the following reasons: (a) to identify the major risks of introducing a material damage component to Lebanon’s compulsory car insurance regime, (b) to recommend approaches to mitigate or avoid these risks, and (c) to assist in development of ministerial decrees that would support the team’s recommendations. Further, the ICC sought to enhance its risk-based approach to supervision by (a) increasing compliance with the current Insurance Core Principles of the International Association of Insurance Supervisors and (b) developing a risk-rating system and supervisory ladder.
The project team is providing technical assistance through two components.
Component 1: Adding a sound and well-regulated material damage component to Lebanon’s compulsory motor insurance
The project team is conducting an extensive study of motor insurance regulations proposed by the insurance sector. The project team is also conducting interviews with market regulators, supervisors, and other stakeholders, as well as drafting an “assessment report” that outlines risks and recommends sound practices. Last, the project team is (a) advising on ministerial decrees that address a material damage component in motor insurance policies and (b) reviewing decrees drafted through local legal processes to ensure technical consistency with the team’s recommendations.
Component 2: Improving risk-based supervision of the insurance sector in off-site and on-site supervision, risk rating, and consequent reporting and data-collection updates
To develop a more risk-based approach to supervision, the project team is supporting the ICC in completing a self-assessment developed by the International Association of Insurance Supervisors. After analyzing the ICC’s current preliminary risk-assessment processes, the project team is developing a revised risk-rating system and a supervisory intervention ladder The team is also developing a process for on-site inspections as it supports the ICC in the initial implementation of a targeted inspection cycle, the steps of which will be (a) selecting an inspection subject, (b) designing the inspection, (c) executing the inspection, and (d) preparing reports that outline conclusions and recommended actions.
The main expected outcomes of the project are as follows:
1. Enacting a material damage decree (regulations)
2. Adopting updated supervision policies, procedures, and methodologies; using updated
manuals and tools
3. Assessing and supervising insurers using the new policies, procedures, and processes
4. Conducting on-site inspections using the new policies, procedures, and processes
5. Regulating and supervising the insurance sector according to international standards
6. Enacting Insurance Core Principle 9—supervisory review and reporting