Policyholder Protection is Paramount in the Isle of Man

Prevention is better than cure. That's the principle behind the Isle of Man's approach to policyholder protection, as this article explains.

The Isle of Man is generally accepted as the go-to jurisdiction for international life assurance and wealth management products and has been for more than 40 years.  Many factors combine in that elevated status, of course, but policyholder protection has always been core to the overall jurisdictional proposition.

The cornerstone of the policyholder protection ethos is that prevention is better than cure, and this is set out through a multi-layered regulatory approach providing a series of safety nets to ensure the long-term obligations of the Island’s providers continue to be met. 

The first layer of protection is to ensure that the providers are run by the best people.  The Island’s insurance legislation requires that senior management and owners of life companies are fit and proper, that they conduct business in a prudent manner and pay the highest attention to policyholder interests in all that they do.

Over and above the governance and management of each company, the regulatory approach applies close financial scrutiny of each provider’s ability to meet its long-term liabilities.  The total funds an insurer must set aside to meet its insurance obligations can be calculated and, importantly, these funds must, as a matter of law, be used only for that purpose.  Beyond these dedicated funds, two tiers of additional capital are required – the Solvency Capital Requirement and the Minimum Capital Requirement – the former being effectively an early warning system that requires an insurer to take remedial action and the latter an absolute floor which would trigger regulatory intervention if breached.  These financial measurements are continually monitored and independently audited.

Where cure is required, this is found in the form of the Isle of Man’s statutory Policyholder Protection Scheme which has been in place since 1991 and provides up to 90% protection for policyholders in the event that their insurer is unable to meet its liabilities.  However, it is testament to the effectiveness of the prevention measures that this scheme has never been called upon in its near 30 years of existence.

In addition to the governance and capital adequacy requirements, peace of mind is also inherent in the way that life companies must carry on their business.  The Isle of Man’s Conduct of Business Regulations were rolled out during 2019 to provide a framework for the fair treatment of policyholders.  The rules are wide-ranging and include: ensuring product propositions are suitable; all product benefits, features, risks, charges and commissions have been fully communicated and acknowledged; intermediaries are fit and proper and engaged under robust legal terms, and; claims are handled fairly. 

All Isle of Man entities must be able to demonstrate that they are following these rules.

This multi-faceted approach to policyholder protection means that, wherever they are in the world, holders of Isle of Man life policies can rest assured that the providers, and the world-renowned body that regulates them, have their backs.