The problems experienced in Jamaica, in the middle of the 1990’s, when the life insurance industry and most of the banking sector collapsed led the government and regulators to examine the causes. Measures were implemented that were aimed at solving the problems associated with the life insurance industry. In the process, a number of life insurance companies were forced to merge to ensure viability. In contrast, the general insurance industry saw only one failure which was salvaged through government assistance.
The problems led the then Jamaican government to take appropriate actions to remedy the deficiencies that were identified. The then insurance legislation, the Insurance Act of 1971, suffered from many important shortcomings. The Act lacked standards for solvency, investment and accounting. There were no penalties for breaches of the Act and Regulations outside of suspension or cancellation of registration. In addition, the regulatory institution lacked adequate resources to monitor and supervise the rapidly growing industry. The insurance industry, in particular the life insurance sector, was therefore able to operate with inadequate capital and poor operational standards. For the protection of consumers and the maintenance of a strong industry, it was determined that the old Act should be repealed and replaced by a new one, that would effectively deal with the issues of capital adequacy, financial reporting and enforcement (among others).
Improved legislation empowered regulators to act more quickly and decisively to head off danger and also to require improved corporate governance and management of companies. In addition, auditors and actuaries of regulated entities were required to report to the FSC any matter that comes to their attention that could have a material adverse effect on the company.
In the case of the insurance industry, accounting standards were developed and included in regulations under the new Insurance Act of 2001. Regulations were also developed to prescribe the procedures to be followed by the Appointed Actuary in reporting on the solvency of an insurance company.
Out of the ashes of the insurance industry the FSC was born to administer the new insurance legislation encompassing a new Insurance Act, the Insurance Regulations, the Insurance (Actuaries) (Life Insurance Companies) Regulations and the Insurance (Actuaries) (General Insurance Companies) Regulations and to raise the level of supervision to such a standard that a repeat of past industry failures would not recur.
The legislation has succeeded in significantly increasing attention to the issue of capital adequacy and solvency and has given the regulator wide powers to supervise and instruct the industries in best practice. The institutional reform and technical strengthening of supervisory capacity has succeeded in achieving the transition of the insurance industry to the requirements of the new Act. The overall strengthening of the industry’s solvency standards and of its ability to successfully meet the needs of its customers is an ongoing process that will be continuing under the firm guidance of the FSC.
As part of the prudential supervision of insurance companies, the FSC has established minimum solvency standards and uses a system of Early Warning Signals to flag potential problem companies. Notwithstanding the FSC’s commitment to financial stability, the best gatekeeper of your financial future is you. Policyholders doing business with insurance companies or their representatives should, among other things:
- Check to see if the registration certificate issued by the FSC is prominently displayed in the Company’s office;
- Check for the identification of Sales Representatives and verify their credentials with the company;
- Find out about the company’s operations and performance by reading its annual report;
- Seek out a qualified representative of the company to explain product features and answer questions;
- Receive regular statements on the status of their policies; and
- Expect timely settlement of all reasonable claims.