The Cayman Islands Monetary Authority issued a report last week recommending 23 sets of amendments to the Insurance Law.
The report was prepared by the Insurance Working Group and it represented the first comprehensive review of the Insurance Law since it was originally enacted in 1979.
CIMA Managing Director Cindy Scotland said the amendments made to the Law since its enactment were made on an as-needed basis.
‘[Since] that time, insurance itself has evolved into very sophisticated and complex products in what is now an equally dynamic industry,’ she said. ‘A number of the recommendations reflect the existing operating practice of the Authority and placing them in the law would formalise that practice.’
CIMA is now seeking comment on the recommendations from financial industry associations between now and 28 July. However, the recommendations did not come as a surprise to the insurance industry because of the consultative process used in producing the report.
‘We had very serious consultation,’ said Nigel Twohey, president of the Cayman Islands Insurance Association.
In general, Mr. Twohey sees the recommendations as a good compromise in safeguarding consumers with reasonable regulation.
‘There are a couple of small problems [with the recommendations] we’ll have to discuss,’ he said.
‘But [CIMA} wants to make sure insurance companies are as strong as possible, and that they have things like disaster plans in place,’ he said.
The Working Group incorporated into its report findings of the report issued last year dealing with insurance industry post-Hurricane Ivan. Some of the recommendations for amendments to the law therefore seek to address problems the insurance industry experienced after the hurricane.
One such amendment suggested in the report deals with securing adequate funds from external insurers to meet local liabilities. The recommendation comes as a direct result of the collapse of Jamaican-based Dyoll Insurance Company, which failed to pay most of its Cayman policyholders after Hurricane Ivan.
‘The recent experiences with Hurricane Ivan and the consequential failure of a Class A Insurance Company, which involved the Authority in a cross-border insolvency, have highlighted the need to improve and enhance the working mechanics of this section of the Insurance Law,’ the report stated.
The report concluded that the most effective way of guaranteeing protection of local liabilities would be the establishment of a trust deed.
Some of the other recommendations of the report include: creating a new category of insurer, namely that of reinsurer; narrowing the definition of the term insurance business so that credit default swaps can be carved out of the Law; setting new requirements for capital adequacy and solvency for all licensed insurers; and increasing the minimum professional indemnity insurance for insurance brokers from $100,000 to $1 million and imposing the requirement on insurance managers as well.
The report also recommends an amendment to the current law that requires CIMA to only examine the affairs of insurance licensees established after June 1980. The Working Group recommended the June 1980 reference date be removed so that all insurers would be subject to CIMA review.
Claudette Saint-Reid, country manager of Sagicor Life and a member of the Cayman Insurance Managers Association life insurance committee sees the recommended changes as a positive step in strengthening the local insurance industry.
‘The time has come for the insurance industry to assert itself,’ she said. ‘The changes [recommended] in the report are in keeping with that.’
Mrs. Saint-Reid said the Insurance Law needed some revision.
‘The law, as it stands, is vague in some respects,’ she said, noting the broad definition of an agent as an example.
In the case of licensing requirements for agents, Mrs. Saint-Reid thinks the recommendations do not go far enough.
‘There are no minimum standards and no educational requirements [for the licensing of an agent],’ she said, adding that many jurisdictions require such requirements.