Capital Markets, Insurance and Savings Division The Ministry of Finance, Israel Strategic process hi

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Capital Markets, Insurance and Savings
DivisionThe Ministry of Finance,
IsraelStrategic process highlightsJuly 2003


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Strategic plan of the Capital Market, Insurance
and Savings Division

• The Capital Market, Insurance and Savings
  Division of the Ministry of Finance, has
  undergone a process of constructing a five-year
  strategic plan for the Division.The plan is
  required particularly in the light of the
  substantial changes that the financial markets,
  domestic and worldwide alike, have undergone and
  of the financial globalization process.The
  process was conducted by a leading strategic
  consulting company and included comprehensive
  analysis of financial supervisory authorities in
  the world, and meetings with relevant bodies of
  the financial markets in the banking, insurance
  and pension field, both in the public and the
  private sectors.A strategic plan for the
  Division was formed at the end of this process.
  The strategic plan comprises several elements,
  among them the definition of the Divisions
  vision and mission, and the determination of the
  Divisions objectives and goals for the coming
  years in its diverse areas of occupation
  (capital market issues were dealt with
  separately).
• We hope that the design and contents of the
  strategic plan will be of interest to you.

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Table of contents

• Description of the process
• Goals of the process
• Methodology
• Identity of the Division
• Mission of the Division
• Divisions primary goals
• Supervisory policy
• Goals at the Division level
• Goals at the department level

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Strategic process in the Capital Market,
Insurance and Savings Division

• The strategic process in the Division includes
  two main components
• Preparation for the management workshop comprised
  of four elements
• Interviews with the Division Management
• Internal work teams prepared position papers on
  Divisions agenda issues
• Interviews with external bodies Bank of Israel,
  insurance companies, commercial banks, pension
  funds and insurance agents a total of 9
  interviews (with 13 interviewees)
• Worldwide models review review of supervising
  bodies and methods in the financial markets in
  about 30 countries
• Management workshop 4 intensive days with
  Division management and consultant team
  participation, where issues central to the
  Divisions activity were discussed and decisions
  were taken.

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Strategic process's goals
Definition of the Division Identity, mission,
primary goals and supervision policy
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Next 5 years goals and missions
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Methodology
Divisions identity
Divisions mission
primary goals
Feedback
Next 5 years objectives and goals at the
division level
Next 5 years tasks
Action Plan
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Divisionsidentity
Methodology
World models
Divisions mission
External expectations from the Division
Primary goals

• Identity
• Mission
• primary goals
• Market and authorities trends
• Convergence
• Organizational models

Feedback

• Mission
• Supervision policy
• Domestic trends
• Failures and opportunities
• Goals
• Tasks for action

Next 5 years objectives and goals at the
Division level
Next 5 years tasks
Plan of Action
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Identity definition who are we?
A government entity charged with the regulation
and supervision of financial services in the
State of Israel, particularly in the insurance,
pension, savings and provident funds sectors
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Divisions mission
To assure the optimal level of financial security
to the customers of the financial services in
Israel which are supervised by the division
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The divisions primary goals
To promote, encourage and ensure

• A variety of financial products, available to all
  and for every need
• Integrity, transparency and fair products pricing
• Customers awareness and comprehension for
  intelligent acquisition of financial products

Customers side

• Securing the institutions stability to ensure
  solvency of public obligations
• Securing system stability

Financial institutions
System wide considerations
Open, fair and competitive financial markets
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Supervision policy
When normal market mechanisms fail and essential
public interests are compromised, a high level of
involvement on the part of the Commissioner is
required
Current situation
High level of Divisions involvement in markets

• Creation of market balancing mechanisms
• Competition
• Creation of mechanisms for proper corporate
  governance
• Customers class actions, customer organizations

Lower level of involvement requires

• Criteria for involvement level
• Competition level
• Product complexity
• Evident failure in the market
• Potential for damage to the customer
• Availability of information
• Level of standards and regulation

Involvement level varies by sectors
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Supervision policy

• Ramifications of involvement level reduction.
  Diagnosis of current versus desirable situation,
  based on two dimensions, supervision and
  standards depth
• First dimension Supervision and control depth
  represents the level of Divisions involvement in
  various markets. Represents distinction between
  direct and indirect supervision methods.
• Second dimension Regulations and standards
  depth what is the extent of detail in standards
  and regulations.
• Diagnosis method
• Analysis of methods and supervision level in
  every sector
• Definition of terms for reduction for Inspectors
  involvement in markets
• Setting criteria for the desired level of
  involvement in every market
• In order to determine the optimal Divisions
  supervision policy, a detailed two dimensional
  analysis of the utility function, in general and
  in respect to every sector, is required.

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Supervision policy
High
X
X
Market perceptionCurrent statusHome and vehicle
X
USA
Divisions perceptionHome and vehicles
Regulation
Desired scope
Standards and regulations depth
Divisions perceptionIndividual
health(long-term care)
X
Divisions perception Group health
X
Low
Supervision
Direct, a-priori, examination of all products,
aspects and issues
Post factum, exceptions and special clauses
examination
Supervision and control depth
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Goals at the Division level
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Goals prioritization criteria

• Prerequisite goals compliance with mission and
  primary goals set
• Existing or anticipated severity of failure if
  division fails to act
• Economic magnitude of failure
• Size and type of public exposed to failure
• Impact of goal on other issues
• Level of market pressure to deal with the problem
  
• Feasibility Divisions ability to fulfill the
  goal

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• Maintaining the stability of insurance companies
• Risk-based supervision - through assessment
  of insurers risk management and his condition
• Corporate governance in an insurance company
  (position and training of the actuary, dynamic
  inspections of capital adequacy, board activity,
  internal audit, etc.)
• Update of professional standards for reserves
  setting
• Re-examination of capital requirements

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• 2. Pension
• Management and supervision appointment of
  special administrator
• Operational umbrella uniformity, clarity and
  equality
• Deficit reset rights level and governmental
  assistance
• Balancing mechanism deficit prevention safety
  cushion
• The test is in execution and in restoration
  of public confidence

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• 3. Transparency and adequate disclosure
• Adequate disclosure proper scope, appropriate
  context (an adequate disclosure is not a full
  disclosure).
• Transparency ways, means and what information
  channels are used to present the adequate
  disclosure, and its availability and
  friendliness.
• The more the adequate disclosure is fully
  applied, the sooner a transition from direct to
  indirect supervision can be achieved.
• Adequate disclosure is required during
  pre-transaction phase (marketing and selling),
  policy life and the insurance occurrence.

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Insurance transaction information transparency,
availability and adequate disclosure failures
mapping and prioritization
A-division
A-division
A-division
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• 4. Fighting insurance fraud
• Insurance frauds larger picture false account
  at policy acquisition, claim inflation,
  fallacious report on circumstances of insurance
  occurrence, fabrication of occurrence
• Regulators involvement required because of
  trade restrictions, privacy, public product
• Phase A dealing with mandatory insurance
• Phase B extension to remaining insurance lines

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• 5. Comprehensive savings policy formation
• Long-term savings encouragement policy redesign
• Harmonization and creation of priorities
  according to the new policy (for instance, tax
  distortions elimination)
• Transparency, elimination of ambiguity
• Channel friendliness and simplicity enhancement

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• 6. Agent's/consultants duties and status
  regulation
• Brokerage/consultancy separation and insurance
  consultant status regulation
• Model of insurance broker?
• Distribution channels expansion
• Training reform, certification and agents
  professional responsibility

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Customer-agent-insurer relations triangle
(brokers) goals and priorities
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Brokers - status
The problem
Customers welfare hurt
Wrong quantity
Purchase product
Unsuitable
Price too high
Why?

• The company
• Doesnt know how to handle the customer
• Does not entirely believe the customer

• Customer
• Doesnt understand product
• Ignorant in conduct vis-à-vis the insurer

Customer and insurer are agent dependent
Solutions options
Means of settlement management process
Simple and manageable shelf products
Customers awareness (making the right choice)
Responsibility taking by the companies
Agent
Claim management
Sale
Education Adequate disclosure
Objective sales counseling Insurance consultant
Objective settlement counseling Settlement
agent
Fairness
Procedure simplicity
Product simplicity
Fairness
SA
DA
Commission structure
Complaints and conflicts examination mechanisms
(courts and others)
Availability-at POS
IA
Possible outcome
Enforcement
Confidence buildingand anxiety reduction
Expenses reduction
DA Dependent Agent IA Independent Agent
SA Special Agent
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• 7. Group long-term care insurance regulation
• Market structure most of the policies group
  policies (sick funds 3.5 million insured)
• The flaw long term need, but no obligation for
  continuity
• Required finding the right balance between
  availability level and the need for continuity

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• 8. Claims settlement processes
• Fairness in claim settlement enforcement
• Transparency process simplicity, consulting
  mechanisms for the insured, comprehension of the
  process

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• 9. Financial services convergence
• Convergence financial service production or
  distribution by an institution which customarily
  does not deal with this
• Worldwide widespread phenomenon in Europe,
  beginning of cooperation between banks and
  insurance in the US
• The conflict effectiveness enhancement against
  centralization enhancement
• Current situation relations between banks and
  insurance companies

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• 10. Globalization
• In the long term analysis of the integration of
  Israeli financial markets into a large economic
  bloc
• Examination of the required adaptations for
  financial services marketability enhancement,
  transparency, regulation
• Cooperation with international bodies relevant
  professional elements in international
  organizations who are dealing with issues related
  to the Division

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Goals at the area level
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Pension area goals and prioritazation
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Provident funds goals and prioritisation
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Life insurance goals and prioritisation
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General insurance goals and prioritisation
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Health insurance goals and prioritization