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Tunisia's insurance sector

Listed author(s):
  • Vittas, Dimitri
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    The main economic functions of the insurance sector are to cover financial risk and to mobilize long-term savings. The sector can also play an important role in developing the private sector and modernizing the securities market. But to play its economic and financial roles, the insurance sector must operate within a framework of stable, liberal regulation that provides incentives for efficiency, allows companies to innovate, and creates a contestable market with relatively free entry and exit. In most developing countries, regulation has deviated greatly from this ideal. Often dominated by state-owned companies, the insurance industry in many developing countries features: (a) strict controls on new entry; (b) prohibitions against majority ownership by foreign companies; (c) fixed premiums (especially for compulsory lines); (d) prior approval of tariff changes and new products; (e) high local retention ratios (which discourage reinsurance from overseas companies); (f) insurance reserves used as a captive source of funding for public deficits; and (g) weak prudential controls and inadequate monitoring of solvency. In recent years there has been a growing trend away from direct controls on premiums, products, and investments, and toward more monitoring of the solvency of companies, through more effective supervision and clear prudential controls. The author argues that Tunisia's insurance sector has been hampered by restrictive regulations, by the country's low incomes (which limit long-term savings capabilities), and by it pay-as-you-go social pension system. Tunisia's life insurance is seriously underdeveloped. The insurance is seriously underdeveloped. The insurance industry also suffers from structural problems. Worst of all, prudential regulations and standards are unequally applied, and some companies are still operating with insufficient capital(in a few cases, with greatly negative equity). What is needed? Capital-deficient companies need to be restructured and recapitalized, state-owned companies need to be privatized, and the market needs to be opened up to majority foreign-owned firms. Supervision must be strengthened and corrective measures applied more equitably and forcefully. The social pension system must be radically reformed, to include one fully funded pillar that will generate long-term savings and transform the prospects for life insurance business.

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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1451.

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    Date of creation: 31 May 1995
    Handle: RePEc:wbk:wbrwps:1451
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    1. Vittas, Dimitri & Iglesias, Augusto, 1992. "The rationale and performance of personal pension plans in Chile," Policy Research Working Paper Series 867, The World Bank.
    2. Vittas, Dimitri, 1993. "Options for pension reform in Tunisia," Policy Research Working Paper Series 1154, The World Bank.
    3. Vittas, Dimitri, 1992. "Contractual savings and emerging securities markets," Policy Research Working Paper Series 858, The World Bank.
    4. Vittas, Dimitri, 1993. "Swiss Chilanpore : the way forward for pension reform?," Policy Research Working Paper Series 1093, The World Bank.
    5. Vittas, Dimitri & Skully, Michael, 1991. "Overview of contractual savings institutions," Policy Research Working Paper Series 605, The World Bank.
    6. Wright, Kenneth M., 1992. "The life insurance industry in the United States : an analysis of economic and regulatory issues," Policy Research Working Paper Series 857, The World Bank.
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