Principles for regulating insurance activities in countries with economies in transition: Central and Eastern Europe
The role of government regulation of insurance activities in countries with economies in transition is closely related to the overall macroeconomic policy that guarantees market stability. However, the regulation of insurance activities should be flexible enough to adapt to the rapid changes in economic conditions that are inevitable in the transition period. Although regulatory authorities in the regulation should be guided by the specifics of the national economy, in accordance with the problems of the developing market, it is possible to single out a number of principles, or the basic functions of regulating insurance activities, the observance of which is necessary to create a civilized insurance market. These include the creation of market infrastructure, the formation of an insurance supervision system, and the promotion of market-based regulatory mechanisms. We detail the essence and mechanism of implementing these principles.
1. Creating a market infrastructure. For the effective functioning of insurance organizations, first of all, it is necessary to create a market infrastructure in which four basic elements can be distinguished. This is the creation of a single legislative framework; adoption of accounting and reporting standards for insurance organizations that are consistent with international ones; preparation and promotion of specialists in the field of insurance (including the creation of professional associations of actuaries and auditors) and the creation of a reliable database on the development of the insurance market and individual companies. A special place in the market infrastructure is the creation of a legal and legal basis for insurance. In a centralized economy, the state monopoly on insurance did not presuppose a well-developed system of laws and by-laws concerning insurance. An exception to this rule was the insurance contract for voluntary insurance, the order, form and mechanism of which was interpreted by the civil codes of the former socialist countries. During the transition from command to market economy, the formation of the insurance market required an adequate legislative framework reflecting the change in social relations. This legislative and legal basis for insurance is regulated in national constitutions, special laws on insurance and civil codes. In the TWE countries that joined the EU in May 2004 - January 2006, this legal framework should be consistent with the EU Insurance Directives. The market infrastructure of insurance activities includes: legislative bases, uniform accounting and reporting standards, education of specialists, a database on the development of the insurance market
2. Creating an insurance supervision system. The insurance supervision system should provide for the existence of two elements: the state insurance supervisory authority and self-regulatory mechanisms. The state insurance supervisory authority should be an institution that is sufficiently independent from political pressure, and from the economic impact of insurance organizations. The supervisor should have a reliable and stable source of funding. Its basic powers should include the right to license, control solvency, obtain and verify information, transfer the insurance portfolio and apply sanctions to companies that do not cope with the established requirements.
Regulation of the insurance market includes: state regulation and self-regulation .
State regulation should encourage the creation and promotion of self-regulatory mechanisms that can determine the rules of conduct on the market.
State regulation of insurance activities is not limited to legislative regulation of insurance activities and the work of state insurance supervision bodies. It covers tax and antimonopoly legislation and their implementation, the activities of a number of ministries and departments, and judicial practice. All branches of the legislative, executive and judicial branches to some extent exert a very significant influence on the development of insurance relations, the insurance market and its institutions.
Regardless of the level of organization of state regulation of insurance activities, market development is hampered in the absence of market regulatory mechanisms, i.e. self-regulation of the insurance industry. In order to facilitate the formation of market-based regulatory mechanisms, it is advisable for state regulatory bodies to:
• accessibility and transparency of basic information on the performance of insurers;
• creating conditions for quality management of companies;
• Encouraging market competition and market liberalization by removing unnecessary restrictions on entry and admission of reliable, including foreign, insurance companies to the market;
• Creation of a system for controlling solvency and current activity of insurers.
The last group of events provides:
• a strict licensing system;
• monitoring of current activities;
• setting rules for reserving, valuing and allocating assets;
• regulation of solvency margin;
• regulation of relations with reinsurers.
However, market mechanisms of self-regulation of the insurance industry can operate only in conditions of transparency and accessibility of basic information on the results of the insurance market; encouraging market competition and market liberalization by removing restrictions on access to the market for reliable insurance companies; reliable control over the solvency of insurers.
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