The Reserve Bank of Fiji announced a change in its policy on offshore placement of insurance business effective from 1 July 2009.
The new policy does not require those intending to buy insurance offshore to provide multiple quotes from the domestic market prior to applying to the Reserve Bank for approval.
The review by the Reserve Bank was said to help in simplifying the approval process for buying insurance offshore.
Insurance may be bought offshore in the following circumstances :
- where a particular insurance cover is not available locally;
- where the insurance premium for an offshore insurance cover is less than 15% of a similar cover obtained in Fiji; and
- where it is in the public interest to buy an insurance cover offshore.
Over the years, I would assume that the first two of the instances noted above have generally been the primary reasons for purchase of insurance offshore. However, the third ground on which insurance may be bought offshore appears to be of interest at this particular time.
Given that insurance premium is a function of perceived future risk and past claims, it may appear that due to events happening in the domestic sphere, insurance providers may have raised insurance premiums by significant proportions. Added to this is the fallout from the global financial crisis from which most countries are suffering.
Companies in Fiji may use these reasons as justification to buy insurance offshore. Given that these companies serve members of the public, they can argue that they will be able to sell their products are a lower price, if they can reduce their costs by buying cheaper insurance offshore.
However, if that is permitted, then local insurers may stand to lose out on business that they would have traditionally had access to over the years.
In the long run, this may help correct pricing of insurance premiums as local insurers would have to re look at their pricing of products again for the Fiji market. Some might even be priced out of the Fiji market.
There are also some types of industries where it is in the public interest for them to buy insurance offshore. Some of these industries may include the health industry for certain types of covers, institutions that serve a public purpose for which cover cannot be adequately provided by local insurers, wealthy companies and individuals taking proactive risk management measures by buying insurance that better serves their needs offshore, are some that come to mind.
At these times, one would expect a rise in applications to be submitted to the Reserve Bank in this area. Given that, there should be a likely rise in approvals which would have a negative impact on Fiji's foreign reserves.
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Labels: Fiji Financial System, Fiji Insurance, Reserve Bank of Fiji