At the basis of good policy is sound business operations that customers, other institutions and parties can rely on. Good regulation, external supervision and a good system of self-regulation contribute to this.
Customer interest central
For insurers, the customer is central to everything they do. A robust system of laws, rules and regulations - and the associated supervision of compliance with them via De Nederlandsche Bank and the Netherlands Authority for the Financial Markets - contributes to protecting customers, monitoring the quality of products and thus ensuring a stable sector. Europe supervises European insurers through the European Supervisory Framework Solvency II.
Current
Vision on supervision
At the basis of sound business operations are three pillars: transparency to the outside world, insurers who are accountable for their own functioning and that internal supervision is effectively anchored in the organization. In addition to external supervision by DNB and the AFM, self-regulation applies to members of the Association. The Association puts topics on the agenda in the field of supervision, offers members a platform for discussion, shares good practices and represents the sector in the public debate.
Principle-based supervision
Since the financial crisis, insurers have had to deal with more and stricter legal rules, more intensive supervision of compliance and a strongly increasing role from Europe in this area.
Laws and regulations should be principle-based as much as possible. This means that insurers endorse the usefulness and necessity of laws and regulations, but at the same time the legislator must keep an eye on their practical implementation. In other words: the legislator must also enable insurers to tailor laws and regulations to their specific situation, in other words tailor-made solutions to enable efficient and effective business operations.
Efficient and effective external supervision, that is what the Association is committed to at national and European level (for example through umbrella organisation Insurance Europe). The Vision on Supervision contains 10 important principles:
- Supervisors ensure good dimensions
- Regulators manage public expectations
- In their communication, supervisors have an eye for the balance between openness and confidentiality
- Supervisors exercise effective supervision: risk-based with an eye for value for money
- Regulators do not take the legislator's or the insurer's seat
- Supervisors only carry out and coordinate highly necessary investigations
- Supervisors work well together to avoid overlap
- Supervisors spend most of their financial resources on their primary task: supervising
- Supervisors carry out horizontal supervision as much as possible
- Supervision by the AFM and DNB will not be replaced by a single European supervisory authority.
Good practices
Good practice calculating bankruptcy value
Many insurers provide information to DNB from its role as resolution authority. One of DNB's information needs focuses on the so-called bankruptcy value of both life insurers and non-life insurers. The good practice shows how insurers can give substance to the valuation according to the Decree. The document outlines what choices an insurer can make to meet the goals of a calculation. The document also shows how the insurance industry (non-life and life insurers) broadly wants to comply with the legal requirements set out in the 'Decree on the valuation of insurance claims in bankruptcy '.
Good practice cost allocation
DNB has calculated how much investment funds and investment firms must contribute to the supervisory costs. The Association has drawn up a good practice cost allocation with positions that concretize the current laws and regulations and a further elaboration of the hypotheses used by DNB from their cost research. More explanation and information can be found in DNB's Q&A.
Good practice reviews
DNB assesses whether (intended) directors and supervisory directors are suitable to perform their duties and whether their reliability is beyond doubt.
DNB's assessment of (intended) directors and supervisory directors leads to solid and honest financial institutions that meet their obligations. The Association has drawn up good practice reviews with building blocks for directors and supervisory directors to be well prepared when nominating candidates to DNB.
Recovery and settlement
When it comes to protecting customers in the event of an insurer's bankruptcy, we have taken an important step in the Netherlands in recent years. The Recovery and Settlement of Insurers Act stipulates that every insurer that must comply with Solvency II must draw up a preparatory crisis plan. This plan is then approved by De Nederlandsche Bank (DNB). DNB also draws up a settlement plan for large Dutch life insurers. Dutch law thus goes beyond the framework prescribed in Solvency II .
The preparatory crisis plan and the resolution plan
A preparatory crisis plan ensures that an insurer thinks in financially healthy times about the measures to be taken for the situation in which its financial position seriously deteriorates. A significant deterioration in the financial position shall include at least:
- an imminent or actual breach of the Solvency Capital Requirement (scr),,
- an imminent or actual breach of the Minimum Capital Requirement (the MCR),
- an imminent or actual deterioration of the liquidity position.
Crisis plan
The preparatory crisis plan contains measures to get the insurer back on track. The purpose of the plan is to research and have available solutions for possible crises and describes the financial, operational and legal feasibility of these solutions. Through good preparation, the insurer can take immediate measures in the event of financial problems. If the measures do not or insufficiently improve the insurer's situation, DNB will proceed to resolution or bankruptcy.
Resolution plan
A resolution plan describes how DNB intends to settle an insurer or insurance group prior to bankruptcy. It describes the tools that DNB uses and how, and what obstacles there are to resolution. Important characteristics of the insurer are also described that are relevant for settlement, such as derivative contracts or the presence of unit-linked insurance policies. An insurer should periodically review the resolution plan. On the basis of the resolution plans, DNB assesses the resolvability of the insurer and may require the insurer to take specific measures to remove impediments.
Preventing bankruptcy
Both plans aim to prevent bankruptcy. If an insurer unexpectedly goes bankrupt, the plans must protect the customer as well as possible. In Europe, too, the Dutch Recovery and Settlement of Insurers Act has not gone unnoticed. A number of Member States are looking at whether they can adopt the Dutch model for recovery and resolution.
Insurers and crisis
What happens in the event of bankruptcy of an insurer?
Non-life insurers
Non-life insurers, like all other financial institutions, can be hit by, for example, a crisis. However, the non-life insurance company must reserve the premium money immediately in order to be able to pay out damage. That is why a non-life insurer must always have a relatively large amount of cash at its disposal. A non-life insurer invests only a limited part of the incoming funds, including premiums. For this reason, non-life insurers are less sensitive to fluctuations in the financial markets.
Non-life insurer bankrupt?
If an insurer goes bankrupt, you as a policyholder must conclude a new contract with another non-life insurer. This insurer assesses and treats your application in the same way as other applications. Health insurers have an acceptance obligation for the basic health insurance.
Current claim with bankrupt non-life insurer
In the event of bankruptcy, the claim that a customer has against his non-life insurer must be submitted to the trustee as a (preferential) claim. For the basic health insurance, a special arrangement is included in the Health Insurance Act. The government does not guarantee claims that have been submitted and are no longer paid out. The exception is the motor traffic guarantee fund, which provides compensation to the injured party if an insurer is unable to fulfil its obligations under the compulsory motor vehicle liability insurance.
Health insurers
Health insurers are non-life insurers. That is why what has been said above about non-life insurers in general also applies to health insurers.
If a health insurer goes bankrupt, the basic healthinsurance is continued with another health insurer. This is obliged to accept you under the same conditions. For ongoing medical treatments, which fall under the basic insurance and started before the health insurer went bankrupt, a separate regulation has been included in the Health Insurance Act. These medical treatments are paid out entirely in accordance with the policy conditions by the Health Insurance Board. You do not have to file a claim with the bankrupt health insurer.
Life insurers
Life insurers, like other financial institutions, can be hit by a crisis. For example, because the value of their assets invested in shares decreases when stock prices fall. However, the solvency requirements set by the European supervisory framework are high, which means that a life insurer will not quickly run into liquidity problems (too little cash to pay out to customers). In addition, unlike banks, life insurers do not run the risk of a so-called 'bank run'. They have long-term contracts with their customers that customers cannot cancel free of charge.
Annuity policy/capital insurance with bankrupt life insurer
If the life insurer goes bankrupt, the policyholder has a preferred (preferential) claim on the estate as large as the claims accrued up to that point. If there is too little money in the estate, there is a chance that the trustee will not be able to pay the entire claim to the policyholder. The government does not guarantee claims that have been submitted and are no longer paid out.
No insurance sector guarantee scheme
If a customer's trust in his bank is lacking, it is relatively easy for this customer to switch to another bank. If this happens en masse, a so-called "bank run" occurs. Even a perfectly healthy bank can get into trouble due to a "bank run". To prevent this, the deposit guarantee scheme has been introduced. The savings of customers are guaranteed (even if a bank goes bankrupt) up to a certain maximum amount.
The nature of insurance business is substantially different. Life insurers generally enter into long-term contracts with their customers and the moment of payment depends on a particular event. The premature termination of a life insurance policy usually costs money. This makes it less attractive for customers to change insurers in the meantime. A 'run' is therefore less obvious. That is why the insurance industry does not have a guarantee scheme.
If an insurer goes bankrupt, the current priority arrangement (preferred claim of policyholders) ensures that policyholders receive an amount back that is a percentage of their claim against the insurer. This may be more than the current €100,000 under the bank deposit guarantee scheme.