Good Practices: Banking Sector

Consumer Protection in the Insurance Sector

Overview

1. 
   The commercial insurance sector in Tajikistan commenced operation after the collapse of the Soviet Union and independence in 1991. Prior to 1991, insurance coverage was provided by two state-owned insurers. Although in the development stage, the sector has shown signs of rapid growth, especially the non-life segment. The last audited figures (2007) put gross written premiums at USD 27 million up from USD 0.50 million in 2000. By comparison, the life segment is small with gross written premiums of less than USD 1 million (2007). The main risks written in the non-life segment are property, marine and liability. There is no data available for the life segment.
   
2. 
   The market is serviced by 15 insurers which are permitted to write both life and non-life business. Of the fifteen insurers, two are state-owned entities. The insurance market is dominated by the larger of the two state companies, Tajik Sugurta, which is the successor to Tajik Gosstrakh, and a more recent private company in 2004, Orien Insurance. Tajik Sugorta enjoys, together with the other state company, Tajik Sarmoya, a legal duopoly in the provision of all the compulsory insurances, but the position of Tajik Sugorta, for many years the market leader, has been eclipsed by Orien, which had a market share in 2007 of over 67% in the non-compulsory lines of insurance. Still, a major obstacle to the development of the insurance sector is the existence of the monopoly positions of the two state-owned insurance entities and the number of compulsory insurance covers that are required, which limits competition, in turn raising costs and reducing the quality of services.
   
3. 
   Insurers were operating initially under the insurance law that was passed in 1994; this is very basic legislation. A new Law on Insurance Activities was passed in 2010 but is deficient in a number of areas when compared with best practice and IAIS requirements. These deficiencies include the structure and powers of the supervisory agency and the area of consumer rights and protection.
   
4. 
   The State Insurance Supervisory Services (SISS) has been established as a department in the Ministry of Finance and is financed directly from the state budget. The structure of the SISS does not meet most of the recommendations of the International Association of Insurance Supervisors (IAIS). The agency is understaffed and underpaid, and in urgent need of institutional strengthening. There is no formal training in place for staff or any mechanism to deliver training. Presently, the supervisory agency does not so much supervise the industry as simply monitor it. In fact, there are no formal documented procedures for either on-site inspection of insurers or off-site reviews of their financial performance. Active, prudential regulation of the market by the agency is conspicuous by its absence. The existing law does not spell out the powers of the supervisor.
   
5. 
   The dissemination of information about insurers and their financial performance is critical to developing an open and competitive sector and encouraging households to use insurance products to transfer risk. While insurers submit monthly reports to the authority, the agency does not have a mechanism to publish any reports on the activities of insurers or the state of the industry, and the public is largely unaware of the stability and performance of the industry.
   

Comparison with Good Practices for the Insurance Sector

SECTION A	CONSUMER PROTECTION INSTITUTIONS
Good Practice A.1	Consumer Protection Regime The law should provide for clear rules on consumer protection in all matters of insurance and there should be adequate institutional arrangements for implementation and enforcement of consumer protection rules. There should be specific provisions in the law, which create an effective regime for the protection of retail consumers of insurance. The rules should prioritize a role for the private sector, including voluntary consumer organizations and self-regulatory organizations.
Description	Comprehensive protection of consumers in relation to insurance generally involves fair competition, prudential supervision and conduct-of-business rules. Fair competition requires a level playing field among insurance providers and choice for consumers. The main prudential issues include: the solvency of the insurance company; the character of those who control it; and the training and experience of its staff. Conduct-of-business issues relate to how individual consumers are dealt with. (a) Law In Tajikistan, prudential issues are dealt with by the Law on Insurance Activity. This provides for the state to license and supervise insurers and insurance brokers. Licenses are issued through the Ministry of Finance. Supervision is carried out by the State Insurance Supervisory Service (SISS). Conduct-of-business issues are dealt with only by general provisions in the Civil Code and the Law on Consumer Protection. Consumer protection is the responsibility of the State Anti-Monopoly Body. Law on Insurance Activity The statute Law on Insurance Activity was adopted in 2010, replacing an earlier statute from 1994. The 2010 law provides for three major types of insurance: compulsory state insurance (which the state must provide for certain officials and state employees); compulsory insurance (which the state requires citizens to take out) and voluntary insurance. Under the 1994 law, both types of compulsory insurance had to be provided through state insurance companies. Under the 2010 law, compulsory state insurance must be provided through state insurance companies, but other compulsory insurance is to be opened to private insurers under separate statutes. Insurance companies must be licensed by the state. Licenses are issued through the Ministry of Finance. From 2014, insurance companies must have qualified actuaries (also licensed by the state). If an insurer includes foreign participation, its management must be in Tajikistan; at least half of the board of directors must be Tajikistan citizens; its share capital must be in Tajikistan currency; and SISS must be told of any increase in the proportion owned by foreign investors. For all insurers, whether or not there is foreign participation, the state sets a minimum for the amount of the paid-up share capital. SISS can set regulations for financial stability. The financial stability of an insurer is to be assessed on the basis of: commercially sound insurance rates; sufficiency of reserves; extent of own funds; and extent of reinsurance. Insurance companies must cooperate with SISS in its supervision of their activities. SISS can specify the financial and statistical information that insurance companies must provide to it. The amount of an insurance company’s reserves must be approved by SISS. SISS can suspend or withdraw an insurance company’s license, under the Code on Administrative Violations, but does not have power to impose any graduated sanctions, such as a public warning or fine. The head and the chief accountant of an insurance company must have a relevant degree-level qualification and two years’ relevant experience. An insurance actuary must have a relevant degree-level qualification and actuarial qualification. The rate of premiums for compulsory insurance is set by the state. Other insurance rates must be based on actuarial calculations and be within limits approved by SISS. Insurance companies must publish their audited annual accounts in the relevant official publications and mass media. When consumers take out policies, they can ask for a copy of the insurance company’s annual accounts. Insurance brokers must be licensed by the state. SISS can specify the information that insurance brokers must provide to it. In a particular transaction, the broker must act for the insured or for the insurer, and not for both simultaneously. The head and the chief accountant of an insurance broker must have a relevant degree-level qualification and two years’ relevant experience. There are no licensed insurance brokers yet, although there is one current application. Insurance agents (acting only for insurers) do not have to be licensed. Insurance brokers and agents cannot place insurance with foreign insurers or brokers – but this does not prevent reinsurance abroad. Disputes relating to insurance issues are to be resolved in court. Civil Code The Civil Code contains general provisions on contracts and, in chapter 51, some specific provisions about insurance contracts. Insurance is to take the form of a contract between the parties but, in the case of compulsory insurance, conditions may be set by statute. Certain types of insurance are prohibited, including: unlawful interests, betting losses and ransom. Articles 1014 to 1018 define certain types of non-mandatory insurance: property (which can include a bearer contract with no named beneficiary); liability to third parties; liability for breach of contract; loss of profits; and personal insurance (of the insured or a named beneficiary) payable on death, injury, reaching a specified age or reaching a specified life event. The 2010 Law on Insurance Activities includes a wider range than this. Articles 1019 to 1021 cover compulsory insurance. This may be required by statute to cover harm to another, or the insured’s liability to another. The Civil Code provided that no-one could be required to insure their own life or health, but that has been reversed by the 2010 Law on Insurance Activity. Articles 1022 to 1053 cover insurers and insurance policies. These include some consumer-protection provisions. Insurers are to be licensed in accordance with separate statutes. Insurance contracts must be in writing. The terms of the policy cannot reduce any rights given to the insured by statute. The insurer can only avoid the contract for non disclosure if it asked the insured relevant questions. The insurer owes the insured a duty of confidentiality. The insured may withdraw from the contract. Law on Consumer Protection The statute Law on Consumer Protection was adopted in 2004, replacing an earlier statute from 1994. It covers services as well as goods and works – and provides that internationally-recognized legal acts also apply. Consumers are entitled to freedom of choice. A provider cannot require a consumer to take an additional service, for example, a lender cannot require a consumer to buy insurance from it. The provider must assist freedom of choice by providing trustworthy information, which must identify the entity/entities providing the service and the information. The state can make rules on the format of the information which must be provided. The role of the State Anti-Monopoly Body is wider than its name implies. It is the body with the responsibility to enforce the consumer protection law and can impose sanctions for general infringements. It can also take court action on its own behalf or on behalf of consumers. The law provides that: state education should include education on consumer rights; consumers are entitled to form consumer associations; these are entitled to be consulted on consumer protection rules; they can commission independent appraisals of any state-set tariffs; and they can bring class actions in court on behalf of consumers. State bodies Both SISS and the State Anti-Monopoly Board are constrained by limited resources. 13.SISS currently lacks sufficient independence, training and specialist expertise (insurance, actuarial and legal). It is better placed to monitor the activities of the insurance industry than to actively supervise them. 14. 15.SISS currently lacks the capacity and ability to fully analyze the information it collects and to publish it in a form that fosters fair competition and consumer choice by providing an overall picture of the stability and performance of the industry. 16. This is particularly important because there is no insurance guarantee or compensation scheme – and consumers retain the memory of significant defaults in the early post-Soviet era. 17.SISS has power to suspend or withdraw the license of an insurance company, but this is appropriate only for serious misconduct. It lacks the power to impose lesser sanctions (such as public warnings and fines) to punish and discourage lesser misconduct. (b) Role of the private sector The only consumer body is the Consumers Union of Tajikistan. It is not active in the field of insurance (or other financial services). Its main focus is on utilities. There are no self-regulatory bodies in the field of insurance. In particular, there is no association of insurers. Some insurance companies (both private and state companies) are in favor of setting up an association. However, they indicated that the idea had been raised in the past without commanding all-round agreement, and they were now awaiting some initiative from the state.
Recommendation	The government should ensure that the legal and regulatory framework for opening up compulsory insurance to private insurance companies is put in place as soon as possible – so that competition can increase consumer confidence, and grow the market, through improved value for money and customer service. SISS should become an independent supervisory authority with all the appropriate powers (including powers to issue public warnings and to fine), resources and capacity – so as to bring it closer to internationally accepted standards – with any future change to the leadership of the authority following a transparent process that ensures public confidence. The government should consider whether the cost should continue to be paid from taxation or be levied on the insurance industry. Alternatively, the government should consider integrating SISS into the National Bank of Tajikistan (which is legally independent and better resourced) to create a Financial Supervisory Authority. SISS should strongly encourage and facilitate the creation of an insurance association, to: provide a focus for effective discussions with the industry; act collectively in order to raise standards and improve the availability of trained and experienced insurance professionals; and provide generic information about insurance to consumers. The 2010 Law on Insurance Activity should be amended, to give SISS an explicit objective, and the necessary legal powers, to take the lead on consumer protection in insurance. This should include legal powers to set rules in relation to conduct-of-business, to supervise them and (where necessary) impose sanctions. SISS should exercise that power to set conduct-of-business rules unless the insurance industry itself speedily adopts a comprehensive and effective code of practice that is enforceable as a result of being incorporated automatically into every insurance contract with a consumer. Aspects that should be included in conduct-of-business rules are discussed in the Good Practices below. The amendment to the 2010 Law on Insurance Activity should also give SISS power, when it considers it appropriate: to set training and qualification requirements for the staff of insurers and insurance intermediaries (not to be exercised until there is a larger pool of trained and experienced insurance professionals); to create a requirement and process for licensing sales agents who are not full-time employees remunerated primarily by salary. SISS’s current practice is to assess an insurer’s reserves on a total basis (that is, a single reserve for all classes of insurance). It would be more prudent, and in accordance with internationally-recognized prudential standards for SISS to assess reserves by class of insurance.
Good Practice A.2	Contracts There should be a specialized insurance contracts section in the general insurance or contracts law, or ideally a separate Insurance Contracts Act. This should specify the information exchange and disclosure requirements specific to the insurance sector, the basic rights and obligations of the insurer and the retail policyholder and allow for any asymmetries of negotiating power or access to information.
Description	There are no specific provisions concerning insurance contracts and information. There are some general provisions (described above) in the Civil Code and the Law on Consumer Protection.
Recommendation	The 2010 Law on Insurance Activity should be amended to give SISS legal powers to set rules in relation to conduct-of-business (including on information exchange and disclosure requirements), to supervise them and (where necessary) impose graduated sanctions. Conduct-of-business rules should be introduced into a new insurance contracts law or as amendments in the insurance law –unless implemented through an effective industry code of practice that is supervised by SISS.
Good Practice A.3	Codes of Conduct for Insurers There should be a principles-based code of conduct for insurers that is devised in consultation with the insurance industry and with relevant consumer associations, and that is monitored and enforced by a statutory agency or an effective self-regulatory agency. If a principles-based code of conduct exists, insurers should publicize and disseminate it to the general public through appropriate means. The principles-based code should be augmented by voluntary codes for insurers on such matters specific to insurance products or channels. Every such voluntary code should likewise be publicized and disseminated.
Description	There is no insurance code of conduct.
Recommendation	The 2010 Law on Insurance Activity should be amended to give SISS the necessary legal powers to set conduct-of-business rules unless the insurance industry itself speedily adopts a comprehensive and effective code of practice that is enforceable as a result of being incorporated automatically into every insurance contract with a consumer. SISS should monitor compliance with the conduct of business rules (or code of practice) and impose sanctions in the event of non-compliance. Conduct of business rules (or the code of practice) should include: in relation to sales and distribution: ensuring advertising and promotional material is clear, fair and not misleading; providing written pre-contract information in clear language in the form of ‘key facts’ documents; controlling insurance intermediation arrangements and the use, training, remuneration and control of agents; disclosing to the consumer the status of any intermediary and the amount of any commission paid to the intermediary by the insurer; clarifying the circumstances in which the insurer (or its agent) is required to check the appropriateness of the policy; clarifying the circumstances in which the insurer (or its agent) is required to make clear that no advice is being given; giving a ‘cooling-off’ period of at least 7 days during which consumers can cancel with a full refund. in relation to renewals: at least 14 days prior written notice of the date when a policy is due to be renewed; at least 14 days prior written notice if the insurer wishes to change the terms on renewal, or refuse renewal. in relation to insurance contracts where the value is subject to variation (for example, as a result of additions/withdrawals and/or investment performance): provision of an up-front projection of the value of the policy, on a basis specified by SISS; provisions of periodic statements at least once per year, with information on how consumers can dispute its accuracy. in relation to insurance claims: giving clear written details of the procedure to be followed in the event of an insurance claim; avoiding the need to involve the police or other state agencies except where that is absolutely unavoidable; prohibiting rejection of a claim for non-disclosure that is not material, or which arose from lack of clarity in the insurer’s question. in relation to complaints (including any dissatisfaction with the handling of a claim); giving clear written details of a process for insurers to deal fairly, effectively and promptly with any complaint; adequate notice to consumers of the existence of the complaints process and how to access it; appointment of a suitable person/department to deal independently with complaints, and to keep records of this; time limits for giving the consumer a full written response.
Good Practice A.4	Other Institutional Arrangements Prudential supervision and consumer protection can be placed in separate agencies or lodged in a single institution, but allocation of resources between prudential supervision and consumer protection should be adequate to enable the effective implementation of consumer protection rules. The judicial system should provide credibility to the enforcement of the rules on financial consumer protection. The media and consumer associations should play an active role in promoting consumer protection in the area of insurance.
Description	(a) Prudential supervision and consumer protection Prudential supervision is assigned to SISS; consumer protection is assigned to the State Anti-Monopoly Body; neither body has sufficient resources to fulfill its role in relation to insurance; and both lack independence, powers and expertise to fulfill their responsibilities or exercise their authority. (b) Judicial system The Law on Insurance Activities provides that disputes relating to insurance issues are to be resolved in court. But consumers appear to lack confidence in the courts as a means of enforcing consumer rights against more powerful businesses. Insurers reported that they had not been taken to court by a consumer in relation to a disputed claim. (c) Media and consumer associations The State Anti-Monopoly Body reported that television seldom covers consumer-protection issues, but that the print media often do. The only consumer body (the Consumers Union of Tajikistan) is not active in the field of insurance.
Recommendation	The consumer protection mandate in the insurance sector should be placed in SISS, which should become an independent supervisory authority with all the appropriate powers, resources and capacity to supervise busines conduct in the insurance sector and take enforcement actions when necessary. The State Anti-Monopoly Body can still fulfill a valuable role by publicising, and signposting consumers to, the arrangements provided by SISS.
Good Practice A.5	Bundling and Tying Clauses Whenever an insurer contracts with a merchant or credit grantor (including banks and leasing companies) as a distribution channel for its contracts, no bundling (including enforcing adhesion to what is legally a single contract), tying or other exclusionary dealings should take place without the consumer being advised and able to opt out
Description	Bundling and tying is contrary to the Law on Consumer Protection. All the insurers interviewed by the mission reported that they were not party to any bundling or tying arrangements. Some insurers reported that particular credit providers might recommend customers to them. Some insurers said they suspected that some credit providers might have arrangements to ‘strongly encourage’ consumers to use insurance companies related to the lender.
Recommendation	While the law provides the necessary provisions, its enforcement appears to be weak. SISS and the State Anti-Monopoly Body should have adequate capacity, resources, and powers to supervise and enforce this provision of the law.
SECTION B	DISCLOSURE & SALES PRACTICES
Good Practice B.1	Sales Practices Insurers should be held responsible for product-related information provided to consumers by their agents (i.e. those intermediaries acting for the insurer). Consumers should be informed whether the intermediary selling them an insurance contract (known as a policy) is acting for them or for the insurer (i.e. in the latter case the intermediary has an agency agreement with the insurer). If the intermediary is a broker (i.e. acting on behalf of the consumer) then the consumer should be advised at the time of initial contact with the intermediary if a commission will be paid to the intermediary by the underwriting insurer. The consumer should have the right to require disclosure of the commission and other costs paid to an intermediary for long-term savings contracts. The consumer should always be advised of the amount of any commission and other expenses paid on any single premium investment contract. An intermediary should be prohibited from identically filling brokering and agency roles for a given general class of insurance (i.e. life and disability, health, general insurance, credit insurance). When a bank is the intermediary, the sales process should ensure that the consumer understands at all times that he or she is not purchasing a bank product or a product guaranteed by the bank. Sanctions, including meaningful fines and, in the case of intermediaries, loss of license, should apply for breach of any of the above provisions.
Description	(a) Because Tajikistan is a primarily rural country, insurers are dependent on agents to reach much of the population. A limited number of these agents are paid by a combination of salary and commission. But the dominant business model involves the use of agents employed on short-term commission-only contracts going out and about to seek customers. Insurers, however, were not entirely confident that agents made it clear to consumers that they acted for the insurer and did not give independent advice. The Law on Consumer Protection requires that consumers be given appropriate information, including about the entity providing the service, so consumers can exercise freedom of choice. But there is no licensing, training or conduct requirement for insurance agents. Most of them do not have continuity of employment and they are paid only if they make a sale. Supervision of their agents by insurers appears to be minimal, and there is a shortage of trained insurance professionals, so there is a high probability that poor sales practices are common. b. The Law on Consumer Protection requires that consumers be given appropriate information, including about the entity providing the service, so consumers can exercise freedom of choice. A significant number of sales are made by intermediaries acting as agent for one company. But control of their agents by insurers is weak, and insurers were not entirely confident that agents made it clear to consumers that they acted for the insurer and did not give independent advice. Under the Law on Insurance Activities, the broker must act for the insured or for the insurer in a particular transaction, and not for both simultaneously. There are currently no intermediaries who are brokers. There is one application pending, but it is believed that the applicant intends to act as agent for several companies and does not intend to give independent advice to consumers. So there is currently no prospect of consumers receiving independent advice on insurance. There are group insurance arrangements which, though not unusual internationally, do not appear to fit easily within the current regulatory framework, which assumes that the beneficiaries of insurance are named in the policy. An example is where an insurer sells travel cover to a travel agent, which then passes on the benefit of the cover to consumers as part of a travel contract. It is unclear, in terms of the regulatory arrangements, whether the travel agent is acting as an agent of the insurer or in some other capacity. (c) There are currently no insurance brokers. There are no legal requirements for brokers or agents to disclose their commissions or other costs paid to the intermediary, and given the lack of supervision of agents, it is unlikely that such disclosure is made. (d) The Law on Insurance Activities requires that the broker must act for the insured or for the insurer in a particular transaction, and not for both simultaneously. However, there is no prohibition in the law that would prevent a person or entity from being a broker in one transaction for a given general class of insurance while being an agent in another transaction for the same general class of insurance. (e) There is no evidence that banks work as intermediaries or that consumers believe insurance is guaranteed by a bank. (f) There is no licensing of intermediaries who are agents. There is licensing for intermediaries who are brokers, though no licenses have been issued yet. SISS can suspend or withdraw a license, but does not have power to impose any lesser sanctions, such as a fine.
Recommendation	18.SISS should: examine the channels through which insurance is distributed – both outside Dushanbe and, particularly, in more rural areas; consider the implications for sales practices of the use of largely untrained short-term commission-only agents; examine the passing-on to individual consumers of the benefit of group cover by traders (for example, travel agents); consider how that passing-on of cover by traders as part of another service fits into the regulatory arrangements for insurance. 19. In relation to sales and distribution, and specifically to address a-f above, conduct of business rules should include: controlling insurance intermediation arrangements and the use, training, remuneration and control of agents; disclosing to the consumer the status of any intermediary and the amount of any commission paid to the intermediary by the insurer; clarifying the circumstances in which the insurer (or its agent) is required to check the appropriateness of the policy; clarifying the circumstances in which the insurer (or its agent) is required to make clear that no advice is being given.
Good Practice B.2	Advertising and Sales Materials Insurers should ensure their advertising and sales materials and procedures do not mislead customers. Regulatory limits should be placed on investment returns used in life insurance value projections. Insurers should be legally responsible for all statements made in marketing and sales materials they produce related to their products. All marketing and sales materials should be easily readable and understandable by the general public.
Description	The Law on Consumer Protection requires that providers assist freedom of choice by providing trustworthy information. In addition, the 2003 Law on Advertisements requires that materials must be easy to understand and not be deceptive or misleading. There is no regulatory limit on the investment returns used in life insurance value projections. One state insurance company did not share its marketing material, and referred instead to its website – where the information the mission was seeking could not be found. Consumers reported that they found it particularly difficult to obtain information on compulsory insurance. The other state insurance company and the private companies shared promotional material that was largely in line with practice in western Europe. Some insurers reported that they were prepared to provide consumers, on request, with a copy of policy terms. But there was a lack of ‘key facts’ documents, which are available in some countries and are recommended as good practice. These would provide more detailed information than the promotional material about the terms of the coverage available, in language that is shorter and less technical than the policy terms themselves, to help customers make an informed choice before taking out the insurance contract.
Recommendation	Insurers are legally responsible for the material they provide. But other aspects of good practice are lacking. SISS, with an expanded mandate to regulate and supervise consumer protection in the insurance sector, should monitor advertising practices and have the power to levy fines or other penalties on violators. In relation to sales and distribution, and specifically to address a-c above, conduct of business rules should include: ensuring advertising and promotional material is clear, fair and not misleading; and providing written pre-contract information in clear language in the form of ‘key facts’ documents.
Good Practice B.3	Understanding Customers’ Needs The sales intermediary or officer should be required to obtain sufficient information about the consumer to ensure an appropriate product is offered. Formal ― fact finds should be specified for long-term savings and investment products and they should be retained and be available for inspection for a reasonable number of years.
Description	There does not appear to be any legally-enforceable requirement to obtain sufficient information about the consumer to ensure an appropriate product is offered, and SISS says that there is currently no such requirement in practice. None of the sales processes described by the insurance companies involved such a step.
Recommendation	In view of the undeveloped nature of the market in Tajikistan, specific provisions for long-term savings and investment products would be premature. But, conduct of business rules imposed by SISS (or a code of practice adopted by the insurance industry) should include: clarifying the circumstances in which the insurer (or its agent) is required to check the appropriateness of the policy; clarifying the circumstances in which the insurer (or its agent) is required to make clear that no advice is being given.
Good Practice B.4	Cooling-off Period There should be a reasonable cooling-off period associated with any traditional investment or long-term life savings contract, after the policy information is delivered, to deal with possible high pressure selling and mis-selling.
Description	There does not appear to be any legally-enforceable requirement to this effect, and SISS says that there is currently no such requirement in practice, though it could be a term of the agreement between the parties. None of the sales processes described by the insurance companies involved such a provision.
Recommendation	Conduct of business rules imposed by SISS (or a code of practice adopted by the insurance industry) should include giving a ‘cooling-off’ period of at least 7 days during which consumers can cancel with a full refund.
Good Practice B.5	Key Facts Statement A Key Facts Statement should be attached to all sales and contractual documents, disclosing the key factors of the insurance product or service in large print.
Description	A key facts statement is not mentioned in any law, regulation, or code of conduct in Tajikistan, and SISS says that there is currently no such requirement in practice. No insurance companies visited by the mission provide such a document to their potential customers. The promotional material of some companies was better than others in highlighting a few key features of the policy.
Recommendation	Conduct of business rules imposed by SISS (or a code of practice adopted by the insurance industry) should include providing written pre-contract information in clear language in the form of ‘key facts’ documents.
Good Practice B.6	Professional Competence Sales personnel and intermediaries selling and advising on insurance contracts should have sufficient qualifications, depending on the complexities of the products they sell. Educational requirements for intermediaries selling long-term savings and investment insurance products should be specified, or at least approved, by the regulator or supervisor.
Description	Under the Law on Insurance Activities, the head and the chief accountant of an insurance company and of an insurance broker must have a relevant degree-level qualification and two years’ relevant experience. There are no qualification or experience requirements for sales, administration or claims staff either in the law or in SISS regulations. SISS reported that there is a shortage of experienced personnel. Some insurers reported that this includes not only those involved in sales and administration but also those involved in technical assessments associated with claims. There is also a shortage of actuaries.
Recommendation	The establishment of an insurance association would enable insurers to act collectively in order to enhance the standing of the industry by raising standards and improving the availability of trained and experienced insurance professionals. Once there is a larger pool of trained and experienced insurance professionals, SISS should consider setting appropriate training and qualification requirements for the staff of insurers and insurance intermediaries.
Good Practice B.7	Regulatory Status Disclosure In all of its advertising, whether by print, television, radio or otherwise, an insurer should disclose: (i) that it is regulated, and (ii) the name and address of the regulator. All insurance intermediaries should be licensed and proof of licensing should be readily available to the general public, including through the internet.
Description	There does not appear to be any legally-enforceable requirement for an insurer should disclose: (i) that it is regulated, or (ii) the name and address of the regulator. SISS says that there is currently no requirement for an insurer to disclose its regulatory status in such material. In practice, some insurers do so in their offices and on their promotional material and/or provide a copy of their license on their websites. Insurance intermediaries who are brokers are required to be licensed. although no such licenses have yet been issued. Insurance intermediaries who are agents are not required to be licensed.
Recommendation	Conduct of business rules imposed by SISS (or a code of practice adopted by the insurance industry) should include: ensuring advertising and promotional material is clear, fair and not misleading (but the specific requirement mentioned above in B.7(a) is not considered necessary in current circumstances in Tajikistan); SISS should be given the legal power to create a requirement and process for licensing sales agents who are not full-time employees remunerated primarily by salary.
Good Practice B.8	Disclosure of Financial Situation The regulator or supervisor should publish annual public reports on the development, health, strength and penetration of the insurance sector either as a special report or as part of the disclosure and accountability requirements under the law governing it. Insurers should be required to disclose their financial information to enable the general public to form an opinion with regards to the financial viability of the institution. If credible claims paying ability ratings are not available, the regulator or supervisor should periodically publish sufficient information on each insurer for an informed commentator or intermediary to form a view of the insurer’s relative financial strength.
Description	(a) SISS does not publish annual public reports on the development, health, strength and penetration of the insurance sector. (b) The Law on Insurance Activities requires insurance companies to publish their audited annual accounts in the relevant official publications and mass media. Moreover, when a consumer takes out a policy, he/she can ask for a copy of the insurance company’s annual accounts. (c) SISS does not publish information about the ratio between insurers’ premium income and claims.
Recommendation	SISS should publish annual public reports on the overall insurance sector and the financial standing of individual insurers, including the ratio between insurers’ premium income and claims for each class of insurance.
SECTION C	CUSTOMER ACCOUNT HANDLING AND MAINTENANCE
Good Practice C.1	Customer Account Handling Customers should receive periodic statements of the value of their policy in the case of insurance savings and investment contracts. For traditional savings contracts, this should be provided at least yearly, however more frequent statements should be produced for investment-linked contracts. Customers should have a means to dispute the accuracy of the transactions recorded in the statement within a stipulated period. Insurers should be required to disclose the cash value of a traditional savings or investment contract upon demand and within a reasonable time. In addition, a table showing projected cash values should be provided at the time of delivery of the initial contract and at the time of any subsequent adjustments. Customers should be provided with renewal notices a reasonable number of days before the renewal date for non-life policies. If an insurer does not wish to renew a contract it should also provide a reasonable notice period. Claims should not be deniable or adjustable if non-disclosure is discovered at the time of the claim but is immaterial to the proximate cause of the claim. In such cases, the claim may be adjusted for any premium shortfall or inability to recover reinsurance. Insurers should have the right to cancel a policy at any time (other than after a claim has occurred – see above) if material non-disclosure can be established.
Description	(a) to (c) There does not appear to be any legal requirements that customers receive periodic statements, that customers be able to dispute the accuracy of the transactions recorded in the statement, or that insurers be required to disclose the cash value of a traditional savings or investment contract. There is currently no requirement for projected cash values to be provided at the time of the initial contract or any subsequent adjustments. Values can be disputed only at the end of the policy term. (d) There does not appear to be any legally-enforceable requirement that customers be provided with renewal notices before the renewal date for policies or that they be notified if the insurer does not wish to renew a contract. SISS reported that it is up to the policyholder to remember to pay any renewal premium. (e) and (f) Insurers can cancel a policy for non-disclosure, but the non-disclosure has to be material. The Civil Code provides that an insurer can avoid the contract for non-disclosure only if it asked the insured relevant questions.
Recommendation	Conduct of business rules imposed by SISS (or a code of practice adopted by the insurance industry) should include: Relevant to (a) to (c) in relation to insurance contracts where the value is subject to variation (for example, as a result of additions/withdrawals and/or investment performance): provision of an up-front projection of the value of the policy, on a basis specified by SISS; provisions of periodic statements at least once per year, with information on how consumers can dispute its accuracy. Relevant to (d) in relation to renewals: at least 14 days prior written notice of the date when a policy is due to be renewed; at least 14 days prior written notice if the insurer wishes to change the terms on renewal, or refuse renewal. Relevant to (e) to (f) in relation to insurance claims: giving clear written details of the procedure to be followed in the event of an insurance claim; avoiding the need to involve the police or other state agencies except where that is absolutely unavoidable; prohibiting rejection of a claim for non-disclosure that is not material, or which arose from lack of clarity in the insurer’s question.
SECTION D	PRIVACY & DATA PROTECTION
Good Practice D.1	Confidentiality and Security of Customers’ Information Customers have a right to expect that their financial transactions are kept confidential. Insurers should protect the confidentiality and security of personal data, against any anticipated threats, or hazards to the security or integrity of such information, and against unauthorized access.
Description	Article 1030 of the Civil Code provides that an insurer cannot divulge information about the insured, any beneficiary, their health or their property. The 2002 Law on Protection of Information does not appear to impose detailed requirements on the processing of personal information such as are found in more advanced economies concerning the security of systems in which data are held, the circumstances in which data can be shared, whether data can be transferred abroad (and, if so, what protections must exist in the recipient country) and the right of people to access copies of the data about them and to correct any mistakes.
Recommendation	There should be legal requirements on the processing of personal information (for example: security, sharing, transfer and correction) such as are found in more developed economies. The European Union Data Protection Directive would provide a checklist of the issues to be considered.
SECTON E	DISPUTE RESOLUTION MECHANISMS
Good Practice E.1	Internal Dispute Settlement Insurers should provide an internal avenue for claim and dispute resolution to policyholders. Insurers should designate employees to handle retail policyholder complaints. Insurers should inform their customers of the internal procedures on dispute resolution. The regulator or supervisor should investigate whether insurers comply with their internal procedures regarding consumer protection.
Description	(a) We distinguish between ‘claims’ (meaning asking the insurer to pay out under the terms of an insurance contract) and ‘complaints’ (meaning complaining about an insurer’s refusal of a claim or other alleged misconduct). SISS has previously taken the view that claims and complaints are matters for the terms of the insurance contract, and an issue of customer service rather than consumer protection. The focus of its supervision of claims is on the adequacy of reserves. State and private insurers reported that they had departments to deal with claims. So far as the mission was able to verify the details of these procedures from the information the insurers made available, they ranged from the bureaucratic to the accessible. Some private insurers (especially those providing cover for international bodies and their staffs) claimed to have a telephone hotline available 24 hours per day 7 days per week. In some cases, assessment of the claim might involve: inspection by an expert appointed and employed by the insurer (for example, inspecting the site of an accident); obtaining a report from the police (for example, in the case of a traffic accident); and/or obtaining a valuation from an appraiser approved by the relevant state authority (for example, valuation of a car by an appraiser approved by the Ministry of Transport). The larger state insurance company reported that it did receive a number of complaints about its decisions in claims, but that such complaints were always resolved to the satisfaction of the insured. It had no record of the number of complaints. It reported that consumers could escalate complaints to senior management in accordance with details on its website. However, the mission could not find these details on the company’s website. All of the other insurers reported that all claims were settled to the entire satisfaction of the insured. Consumers reported that claims were seldom made in respect of compulsory third-party liability motor insurance, partly because it was necessary to involve the police. (b) and (c) The mission found no insurer which had specific employees designated for the handling of complaints, or which had a published complaints procedure. It does not appear to be the practice for insurance policies, or promotional materials, to set out details of how customers can make a complaint if they are dissatisfied. (d) The mission found no documented complaints procedures that SISS could check against.
Recommendation	Conduct of business rules imposed by SISS (or a code of practice adopted by the insurance industry) should include: in relation to insurance claims: giving clear written details of the procedure to be followed in the event of an insurance claim; avoiding the need to involve the police or other state agencies except where that is absolutely unavoidable; prohibiting rejection of a claim for non-disclosure that is not material, or which arose from lack of clarity in the insurer’s question. in relation to complaints (including any dissatisfaction with the handling of a claim); giving clear written details of a process for insurers to deal fairly, effectively and promptly with any complaint; adequate notice to consumers of the existence of the complaints process and how to access it; appointment of a suitable person/department to deal independently with complaints, and to keep records of this; time limits for giving the consumer a full written response.
Good Practice E.2	Formal Dispute Settlement Mechanisms A system should be in place that allows consumers to seek affordable and efficient third-party recourse, which could be an ombudsman or tribunal, in the event the complaint with the insurer cannot be resolved to the consumer’s satisfaction in accordance with internal procedures. The role of an ombudsman or equivalent institution vis-à-vis consumer disputes should be made known to the public. The ombudsman or equivalent institution should be impartial and act independently from the appointing authority and the industry. The decisions of the ombudsman or equivalent institution should be binding upon the insurers. The mechanisms to ensure the enforcement of these decisions should be established and publicized.
Description	The Law on Insurance Activities says that disputes relating to insurance issues are to be resolved in court. Insurers reported that there have been very few court cases related to insurance in the last ten years and they had not been taken to court by a consumer in relation to a disputed claim. The State Anti-Monopoly Body reported that court cases brought by consumers were very rare. Consumer issues might end up in court occasionally if a provider appealed to court against a sanction imposed by the State Anti-Monopoly Body. Consumers appear to lack confidence in the courts as a means of enforcing consumer rights against more powerful businesses. The Human Rights Ombudsman told the mission that about a third of the complaints he received were about the courts, though these were not always justified. There is no specialist financial or consumer ombudsman, nor any other specialist third-party recourse mechanism. State bodies SISS reported that it has pursued individual insurance cases that were referred to it by consumers, although it lacks this explicit authority under the law. It has power to make recommendations. If appropriate, it can suspend or withdraw an insurer’s license, but it lacks the power to impose lesser administrative sanctions (such as a public warning or a fine). SISS is constrained by limited resources. It took up fewer than 30 insurance cases on behalf of consumers in 2011. The State Anti-Monopoly Body reported that it pursues individual cases that were brought to it by consumers, or which it saw reported in the media, but that consumers are passive and seldom complain. It has power to impose administrative sanctions on providers. The Body itself, re-established in 2010, is constrained by limited resources. It took up fewer than 20 cases on behalf of consumers across the whole consumer sector in 2011 (none in financial services), though its work on competition issues also had consumer-protection benefits. Alternative dispute resolution There is no mechanism for consumers to obtain affordable and effective redress against insurers through an ombudsman or other alternative dispute resolution body. There is no entity or inter-company arrangements, for resolving the distribution of costs between two insurers involved in providing indemnity in relation to one incident. The issue has to be pursued by one insurer arranging for court proceedings against the consumer covered by the other insured – unnecessarily putting the consumer through court proceedings when the dispute is between insurers.
Recommendation	In the short term, SISS can continue with its ad hoc arrangements for the limited number of consumer disputes that arise. The law should be amended to explicitly give SISS authority to regulate consumer protection in the insurance sector and to enforce these regulations. In the medium term, once more complaints start to emerge from the new complaints procedures to be established by insurers, an independent ombudsman should be established in order to provide a low-cost, informal, effective and prompt means of resolving disputes between consumers and insurance companies, in accordance with internationally-recognized principles.^12 An ombudsman might be established under the joint sponsorship of the industry body and consumer-protection bodies or, failing this, be established by law. There are precedents from elsewhere within the CIS. For example, in Kazakhstan, an insurance ombudsman was established – initially to resolve disputes between insurers, and then opened up to deal with disputes raised by consumers. In Armenia, a financial ombudsman (for the whole financial sector) was established by law.
SECTION F	GUARANTEE SCHEMES AND INSOLVENCY
Good Practice F.1	Guarantee Schemes and Insolvency With the exception of schemes covering mandatory insurance (and possibly long-term insurance), insolvency guarantee schemes are not to be encouraged for insurance because of the opaque nature of the industry and the scope for moral hazard. Strong governance and prudential supervision are better alternatives. Nominal defendant arrangements should be in place for mandatory insurances such as motor third party liability insurance to cover situations where there is no insured guilty party. Assets covering life insurance mathematical reserves and investment contract policy liabilities should be segregated or at the very least earmarked, and long-term policyholders should have preferential access to such assets in the event of a winding-up.
Description	(a) There is no insolvency guarantee scheme for insurance in Tajikistan. The Law on Insurance Activities provides SISS with authority to oversee the financial position of insurance companies but not their governance. (b) SISS reports that there is no arrangement for a nominal defendant. For example, a victim of a ‘hit and run’ accident is unable to make a claim if the guilty party is not identified or insured. (c) There is currently no long-term life insurance in Tajikistan; short-term policyholders do not have preference over other creditors; but there are arrangements in place to transfer existing insurance contracts from an insolvent insurer to another insurer nominated by SISS.
Recommendation	(a) The government should consider whether to establish a guarantee scheme, to give consumers confidence in the insurance industry, starting first with compulsory insurance. SISS should have all necessary powers to regulate and supervise prudential norms and governance in the insurance sector. (b) The government should consider establishing arrangements for a nominal defendant for third-party claims in relation to compulsory insurance (for example, a claim by a victim of a ‘hit and run’ accident where the guilty party is not identified or is not insured) – to be financed by a levy on providers of compulsory insurance, in proportion to their premium income. (c) The government should change the law in order to give policyholders preference over other creditors of insurance companies.