INTRODUCING A LIFE ASSURANCE GUARANTEE SCHEME IN UKRAINE: FUNDING MECHANISM AND RISK-BASED ADJUSTMENT
Keywords:life assurance, insurance guarantee scheme, policyholder protection, funding mechanism, risk-weighted contribution
Abstract. Life insurance, as well as bank deposits, is a form of household savings, so contributions under life insurance contracts must be properly guaranteed by creating compensation mechanism. The paper deals with a number of issues in relation to the solutions for Ukrainian life insurance guarantee scheme (IGS). The main purpose of this study is to introduce decision on scheme design and appropriate fund-raising mechanism for Ukrainian IGS providing the last resort protection to customers who make their savings via life assurance contracts. Highlighting positive and negative effects of IGS implementation, analysing sources of funding for guarantee schemes, the research substantiates economic effects of risk-based approach to assessing contribution and proposes general scheme of estimating the insurer’s contribution to the IGS fund, in particular indicators for risk-based adjustment of IGS levies and adjustment procedures.
Based on methods for calculating contributions to European deposit guarantee schemes, the article specifies technically sound methods for calculating contributions to IGS fund which capture various aspects of the insurers’ risk profile including capital adequacy, asset quality, liquidity and funding, profitability profile, business management, as well as the potential loss for the IGS and market circumstances.
The methodology, proposed in the paper, is relevant not only for Ukraine, where the introduction of the IGS scheme for life assurance is only in perspective, but also for all other countries with existing IGS to implement risk-weighted approach to scheme setting that prompts insurers to control their risks, provides more effective and healthy competition.
Keywords: life assurance, insurance guarantee scheme, policyholder protection, funding mechanism, risk-weighted contribution.
JEL Classification G22, G33
Formulas: 5; fig.: 4; tabl.: 1; bibl.: 13.
How to Cite
Copyright (c) 2020 Banking University
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors of research articles published in the Collection agree to the following terms:
- authors reserve the right to his authorship of scientific articles and broadcast journal right of first publication of scientific articles licensed under CC Attribution (Creative Commons Attribution License), which allows others to freely distribute the published scientific article referring to the original authors of the article and the first publication of the article in Research Works’ Collection on "Finance and credit activity: problems of theory and practice";
- authors have the right to enter a separate agreement concerning additional exclusive distribution of the article in the form it was published in the journal (for example, to post the research in an electronic storage of the establishment or publish as a part of a monograph), provided that the reference to the first publication of the article in the Collection.