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To Regulate or Not To Regulate

To Regulate or Not To Regulate. Thoughts to the discussion on regulated versus non-regulated markets. Nóra Kiss Hungarian Financial Supervisory Authority. To Regulate or Not To Regulate. Legislative background How it works in practice - everyday problems Dilemmas of the HFSA Final decision.

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To Regulate or Not To Regulate

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  1. To Regulate or Not To Regulate Thoughts to the discussion on regulated versus non-regulated markets Nóra Kiss Hungarian Financial Supervisory Authority Santiago, 11 October, 2002

  2. To Regulate or Not To Regulate • Legislative background • How it works in practice - everyday problems • Dilemmas of the HFSA • Final decision Santiago, 11 October, 2002

  3. Legislative background The Act on Insurance: Act XCVI of 1995 (modified several times) Santiago, 11 October, 2002

  4. Scope of the Act/1 • Covered by the Act: • Insurance and directly related activities • Insurance mediation and consulting activities • Representation of an insurer seated abroad • Outsourced activities • Insurance contracts with foreign insurers • Motor TPL Guarantee Fund Santiago, 11 October, 2002

  5. Scope of the Act/2 • Not covered by the Act: • Social security • Services depending on means + membership fee on lumpsum basis • Quasi pay-as-you-go system • Export credit activity with state guarantee • Voluntary mutual insurance funds and private pension funds • Green Card Santiago, 11 October, 2002

  6. Types of insurer • Company limited by shares • Co-operative • Mutual insurance company Santiago, 11 October, 2002

  7. Mutual insurance companies Non-profit organisations set up voluntarily and operating on the basis of the principle of mutualism which, if insurance events specified in the conditions of the insurance occur, provide predetermined services on the basis of insurance technical principles exclusively for their members against the contributions by their members. Santiago, 11 October, 2002

  8. Rules pertaining to mutual insurance companies • Material conditions • „Lightened rules” • Guarantee fund • Auditor • Supervisory inspections Santiago, 11 October, 2002

  9. (total of premium income + members’ contribution)/year of the last three years security capital < USD 600,000 USD 120,000 USD 600,000 < > USD 1,200,000 USD 240,000 USD 1,200,000 < > USD 1,800,000 USD 360,000 USD 1,800,000 < > USD 2,400,000 USD 480,000 USD 2,400,000 < > USD 3,000,000 USD 600,000 Guarantee fund - life Santiago, 11 October, 2002

  10. (total of premium income + members’ contribution)/year of the last three years security capital < USD 200,000 USD 10,000 USD 200,000 < > USD 300,000 USD 20,000 USD 300,000 < > USD 400,000 USD 40,000 USD 400,000 < > USD 1,200,000 USD 60,000 Guarantee fund – non-life Santiago, 11 October, 2002

  11. Rules pertaining to mutual insurance companies • Material conditions • „Lightened rules” • Guarantee fund • Auditor • Supervisory inspections Santiago, 11 October, 2002

  12. Practice • Everyday problems • Assistance to mutuals: • HFSA • Association of Hungarian Non-profit Insurers • Reinsurer Santiago, 11 October, 2002

  13. Dilemmas of the supervisor • Small agricultural mutuals: • Mutuals represent less than 1% of the market • Lasting problems in their operation • High level of dependence on their reinsurer • Motor TPL mutual: • Systemic risk Santiago, 11 October, 2002

  14. Why to regulate? • Importance of cover for agricultural small entrepreneurs • No other possible „umbrella” • Danger of merging insurance with subvention • Consumer protection Santiago, 11 October, 2002

  15. To regulate or not to regulate? Conclusion: To regulate Santiago, 11 October, 2002

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