Chile: Roadmap for Solvency Control in Insurance
Between May 2007 and January 2008, FIRST assisted in building a plan for the Chilean regulator of insurance- Superintendencia de Valores y Seguros (SVS) to implement a new risk-based supervision model for the Chilean insurance industry.
A risk-based approach is more capable of reflecting differences of risk between insurers; it ensures a better-managed insurance market in which solvency rules more closely matched the risk profile of individual insurers. Thus far, risk-based approach has been typically employed by more sophisticated insurance regulators operating in more sophisticated insurance markets including companies in life insurance and pensions management. Risk-based principles can be applied even in early stage markets, but are often less important when such markets (as is often the case) rely very heavily on reinsurance of risk.
The main goals of the project were to:
- Strengthen risk management
- Execute preventive controls
- Create more flexible regulations in line with core principles (based on IAIS)
- Achieve international levels of supervision
- Focus supervisory resources
Prior to the project, the SVS had been applying fairly rigid rules and had not relied on assessment of insurance company internal controls or on reports of external auditors and actuaries. Whilst this project was tailored to the situation in Chile, there were issues raised in the roadmap that may benefit other jurisdictions planning to strengthen or move towards risk-based supervision.
The roadmap for implementation of the risk-based supervision was designed by a team from the Canadian “Office of the Superintendent of Financial Institutions” (OSFI). The roadmap report is disseminated as a good example of some of the issues to be addressed in moving from a more arbitrary rules-based system of regulation to a risk-based approach.