On 16 October, Chile’s Securities & Insurance Authority, the SVS, published general standard 420 for the self-assessment of basic principles and best market-conduct practices in the insurance industry.

This standard sets out the self-assessment of basic principles and good practice relative to market conduct that insurance institutions and brokers must honor when defining their business management policies. Market conduct is to be understood here as defined in the text: the risk that insurance companies and brokers do not treat their clients and insured parties fairly in any product or service relationship they may have with each other; the definitions and principles set out in the General Standard 309 from 2011 should also be followed.

When it is implemented, certain nuances of interpretation may be acceptable, but the principles and good practice it contains are applicable to all insurance and brokers companies, whatever their volume of production. Furthermore, market conduct must be self-assessed regularly, although the frequency will depend on the categories and conditions laid out in the lengthy appendix.

The areas regulated in this text are the following:

Purpose

The new supervisory framework for market conduct provides guidelines so that insurance market agents consider in their corporate governance those practices that promote trust and strengthen the industry. This will contribute to this sector’s development and to a more efficient allocation of supervisory resources.

Cornerstone supervisory principles

• Fair treatment of clients

The standard requires institutions to ensure that clients receive the product or service suited to their needs, while providing them with correct and clear service and information. To this end, they must:

- Act appropriately with care and diligence in their client dealings, whilst also taking into consideration matters such as how the sales strategy is designed, implementation of internal checks and balances and the availability of suitable staff to service clients.

- Develop products and services that cover the interests and needs of potential insurance policy holders; to achieve this, the product’s target segment must be correctly defined and each of the clauses contained in the policy documents and other contracts must be legally sound.

- Promote products and services using clear, understandable language and terms.

- Provide good quality advice before, during and after signing the contract.

- Fulfil the obligations deriving from the insurance contract, such as procedures for dealing with claims and mechanisms for resolving disputes between client and insurer.

• Managing conflicts of interest

Conflicts of interest occur when an incentive exists on the part of an insurer or broker to behave in a way that may have negative impact on compliance with the obligations that these parties have with their clients.

In general, acceptance of payment, an incentive or any other non-monetary benefit can create a conflict of interest. However, the regulation considers this to be acceptable when the payment or acceptance of something:

- Has the purpose of increasing the quality of the service to the client

- Is disclosed to the client before the service is provided, and

- Does not interfere with the obligation to act in the client’s best interests.

As far as managing these situations is concerned, the regulation requires the institutions’ Boards of Directors to adopt an internal policy that entails setting up diversity policies, commercial agreements, codes of ethics and public disclosure measures.

• Protecting clients’ information

Aside from regulatory compliance as regards information security, institutions must adopt all measures necessary to protect their client’ personal and financial information and respect their privacy. To this end, they must train staff, have the appropriate technology, identify potential risks and have contingency plans in place to mitigate them.

• Promoting the development of the market through transparency

To prevent deceitful, unfair or unethical practices, insurers and brokers must explicitly include in their internal operating policies the observance of transparent business practices that adhere to ethical criteria and institutional values that they themselves have defined.

Furthermore, the regulation recommends the provision of good quality advice that contributes to their clients’ financial literacy, with a detailed explanation of the product or service being sold. Specifically, in the case of savings insurance, this advice should offer other investment alternatives.

Self-assessment and information disclosure to the SVS

Insurers and insurance broker companies that are bank subsidiaries, whatever their turnover, and broker firms with a turnover of 75,000 UF (unidades de fomento) or higher, will have to conduct a self-assessment of their market conduct every two years. This self-assessment will look at the extent to which their market behavior has been compliant with the principles laid down in the regulation and must be reported to the SVS, together with the action plan defined.

This self-assessment of market behavior compliance, in line with the interim provisions in the regulations, must be carried out and reported for the first time to the SVS by 31 March 2018, and cover the period ending in December 2017.