Moldova: Strengthening Insurance Supervision
FIRST was approached by Moldova’s State Insurance and Non-State Pension Funds Supervisory Inspectorate (“Inspectorate”) requesting technical assistance to help strengthen insurance supervision in November 2004. The project design document drew on the findings of a scoping trip. The project was consistent with recommendations made by the World Bank’s FSAP team.
This project sought to address two issues. First, the Inspectorate was not responsible for the issue of licences for insurers/reinsurers (the Chamber of Licensing was responsible but it was envisaged that this would be passed to the Inspectorate through the new law), and no prudential criteria were exercised in the granting of licenses, so that a ‘licence on demand’ situation prevailed. The absence of prudential control over entry to the insurance market is potentially disastrous for healthy market growth and for the interest of policyholders. The project thus sought to strengthen the Inspectorate’s ability to conduct prudential supervision.
Second, the project addressed motor third-party liability (MTPL) issues. The Inspectorate was tasked with making recommendations for tariff revision. It was not equipped for this task, and neither was the insurance industry well informed on modern insurance management/underwriting approaches for this class of business. The assignment also involved comments on the proposed motor third-party liability law. The comments on the proposed Law included several recommendations for widening the circumstances where compensation should be made.
It was recognized that the Inspectorate had a wide range of technical assistance and capacity building needs. Given constraints in resources and also absorption capacity this tightly focused project addressed its immediate technical assistance needs. Wider needs were likely to be addressed at a later stage. In fact because of legislation delays and the Government’s decision to establish a unified regulator for all non-bank financial institutions (NBFIs), amongst other reasons, full training needs analysis and subsequent training did not take place.
- Legislation and sometimes regulations can take a long time to pass through appropriate channels – up to two years or more in some cases. Technical assistance projects involved in such areas often have a training component for the regulator and the sector (banking, insurance or other sectors) that needs to be based on the new legislation/regulation. Serious consideration needs to be given on this process: timing and even practicality where gaps in time might be very long and by which time personnel changes in the recipients may change substantially.
- A careful understanding of approval processes is advisable since sometimes the recipient of technical assistance may need approval from a higher authority (in this case the Ministry of Finance-MOF) before implementation of consultant recommendations. The MOF was not a recipient of the technical assistance and so steps should have been taken to ensure buy-in from the MOF and a channel for consultation opened early on in the assignment.
- An often recurrent problem is the regulator’s ability to retain staff. Often the problem arises because salary levels in regulators are well below those of the private sector and so once trained the staff can be hired away. The practical effect of this is that donor funded training programs for regulators often fail in their immediate purpose (although if the skills are retained in the sector some benefit is still achieved). Remuneration levels and in-house training capacity are potential answers but often difficult to achieve in practice.
- MTPL premiums are often seen as equivalent to a tax by the insured and are unpopular (about 60% of Moldovan drivers were uninsured at the time of this project). Better enforcement procedures facilitates extension of cover but this should be supplemented where possible by a public awareness campaign that illustrates with real case studies that good levels of compensation for injury are available and are paid out (assuming that insurance companies are forced by the regulator to honour claims effectively and promptly).
Much of this assignment covered circumstances peculiar to Moldova and therefore are of less relevance to other countries. However two documents are worth reviewing:
- The Terms of Reference for the project
- The comments on the MTPL Law which formed an Appendix to the consultant’s main report. Whilst the Law is for Moldova some of the issues in the consultants comments may be useful when reviewing similar laws in other countries.