Compliance with prudential standards by insurers
31 July 2013 Reading: 3 min Views: 5 416
Insurance companies of Kazakhstan: oversight of their activities by the National Bank
The guarantee of an insurance company's solvency and effective operation is, above all, its compliance with all the requirements of the supervisory authority, the Committee for Supervision and Control of the Financial Market of the Republic of Kazakhstan or the National Bank of Kazakhstan. In insurance, there are many conflicting opinions about the rules and standards imposed on insurance companies. For example, what prudential standards should apply in Medical insurance, or as it is commonly called, health insurance — on this we certainly agree, but in classes such as Motor insurance, Motor CASCO, Compulsory employee insurance, Life insurance, etc., certain requirements are indispensable. Letting the financial market drift and waiting for insurance companies to develop an inner sense of responsibility is a rather risky step that neither the state nor the supervisory authority would dare to take.There are two views on the regulation of insurance companies and their compliance with prudential standards. Insurance contracts, both voluntary and compulsory, are firmly becoming part of the life of every Kazakhstani, and the question of who should be responsible for the solvency
- The market should be allowed to regulate itself and determine the need to form reserves and their amount. This proposal has its advantages: if Insurers determine the cost and weight of the risk accepted on their own, the following may happen: insurance companies will make the right decisions from within, taking into account both the insurer's capabilities and the policyholder's needs, or, conversely, insurance companies will slide into an abyss of loss-making risks and for some time will be able to meet their obligations by covering payouts with incoming premiums, but in this case bankruptcy will be inevitable.
- The market should be regulated by the State, and it is the state that should set the boundaries within which insurance companies may operate. The advantages: only companies with substantial financial resources at the start-up stage will enter the market; the disadvantages: strong and competent insurers or groups of professionals who dare to set up an Insurance company will be unable to enter the market because of the high entry ticket.
Experts have their own view of this situation, which consists in a balance between these two methods of market regulation.
The most important prudential standard is the "solvency margin ratio", which shows a potential client how properly the insurance company forms its reserves and indicates the so-called safety margin ratio.
