News Column

United States : Guyana Strengthens the Regulation of Insurance and Pensions

July 10, 2014

Guyana has embarked on the regulatory strengthening of the pension and insurance sectors. Proposed insurance and pension laws will increase the solvency, governance, and depth of both sectors. Insurance and pensions protect the poor against vulnerability and livelihood risks, allowing for an increase income and consumption and an accumulation of assets.

The collapse in 2009 of CLICO Guyana, a systemic insurer with assets amounting to 3% of GDP, reduced the insurance market by 75%. Because various pension funds were exposed, the collapse destroyed wealth, undermined confidence in the financial sector, and highlighted weaknesses in the insurance and pension regulatory framework.

A thorough reform of the regulatory framework was required to prevent future crises, ensure consistency with international standards, and foster sound growth of the insurance and pension sectors.

The pension reform also needed to address key weaknesses of the voluntary private pension system. Weaknesses included limited coverage (less than 4 percent of the labor force), long vesting periods (10 years) which particularly affect pensions for women, and a high rate of withdrawal.

Private pensions have an important role in improving poverty and shared prosperity sustainably. They can help prevent old age poverty, broaden financial inclusion, provide funds for investments and are essential for a sustainable and diversified solution to demographic challenges to relieve pressure on over-stretched government budgets.

The World Bank provided a number of solutions to address deficiencies in the regulation of non-bank financial institutions in Guyana. Under the Supervision of Non-Bank Financial Institutions Project, the Bank helped the Government of Guyana draft a new law strengthening the regulation and supervision of insurance companies, in line with international standards on insurance supervision, as well as new insurance regulations.

Under the Pension Regulation Project, the Bank helped the Government draft a new pension law. Improvements of Guyana s current minimal framework for pension regulation include a shorter vesting period (which will particularly benefit women and low income workers with broken career histories) and more restrictions on cashing in before a participant has vested (to motivate pension holders to accumulate savings).

In addition, the reform includes requirements for appropriate safeguards in the management of pensions, such as having a trustee and a custodian, to ensure that companies sponsoring pension plans do not misappropriate pension funds. Simpler pension products were created for employers who want pensions but do not have the time or expertise needed for traditional occupational pension provision.

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Source: TendersInfo (India)

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