The new legislation also strengthens the protection of policyholders against disproportionate actions by providers to void contracts in cases where misrepresentation by consumer was unintentional. In this regard, greater responsibility will be placed on insurers to pose specific questions for consumer insurance contracts, to obtain information for underwriting purposes. Against this backdrop, the Bank has recently issued a Concept Paper on Prohibited Business Conduct outlining practices that are assessed as providing misleading or deceptive information, exerting undue pressure when marketing products and collusive business practices that may result in unfavourable outcomes to consumers. The Bank is also developing standards of fair and responsible business conduct that will require the board and senior management to ensure high standards of fair dealing and professional conduct. While regulations governing business conduct is applicable to all areas of an insurer’s business, new distribution channels will likely require a heightened vigilance in view of the potential for new types and sources of risks. In addition to strengthening business conduct practices, securing public confidence in a market with diverse distribution channels will also require building the financial capability of consumers. While this applies to all consumer segments, particular emphasis will need to be placed on empowering lower income households and other groups that are currently uninsured so that they are able to make informed decisions on the products and services they need.
Indeed, since the linkages among cash, securities, and derivatives markets have become so close, a failure - either by a provider itself or by a major participant - is very likely to cause disturbances affecting different markets at the same time. In addition to collateralisation, the appetite for securities has been forcefully stimulated by the changing needs of private and public wealth owners: the ongoing institutionalisation of the savings process, the facilitation of direct market access through internet technology, the disintermediation of the banking system due to credit risk considerations and the relative decline in attractiveness of bank deposits. On the supply side, the corporate sector has been increasingly relying on bond financing rather than on traditional bank borrowing. In the US, private debt securities amount to about USD 7 trillion. The ratio of bank credits to GDP has remained more or less stable at around 10% for the last 50 years, while the ratio of bond financing to GDP has risen sharply from 15% in 1985 to 25% in 2000. Bond financing within the European corporate sector has also caught up, strongly supported by the inception of the euro at the beginning of 1999. In short, the supply of securities is bound to grow further; cyclical ups and downs are likely, but the trend will point upwards. Notwithstanding obvious differences between economies, it is generally true that the corporate sector will make further progress in exploiting the potential advantages offered by open capital markets. The European corporate bond market seems an especially interesting case.