Keep An Eye On Global Regulation — If You Can
“Yeow!” That’s what one insurance company executive said to me upon leaving a recent workshop on international regulators’ growing influence in the U.S. insurance business.
Insurance agents and advisors might also let out a “yeow,”once they read the new Deloitte report on international regulatory developments.
In a nutshell, Deloitte researchers found that “decisions on regulatory requirements — which for now are still being made primarily by state regulators — are increasingly being influenced by international factors.”
Those requirements focus on carriers. However, as every producer knows, what happens among the carriers ultimately impacts the producers, so this development has significance for the field as well.
Prior to the downturn of 2008, regulation of U.S. insurance companies was almost entirely done by a closed system via the National Association of Insurance Commissioners (NAIC) using U.S.-centric metrics, wrote authors Andrew N. Mais and David Sherwood. There was “relatively minor international influence through organizations,” the Deloitte senior managers said.
But after the downturn, existing global entities such as the International Association of Insurance Supervisors (IAIS) and new ones (such as the G20, the global forum of 20 leading industrial nations) “moved to globalize and centralize insurance regulation,” they said. This increased international influence over U.S. regulation.
OK, some of the changes that have occurred sound sort of dry and “corporate” — group supervision, for instance, and “new emphasis on enterprise risk management and corporate governance.”
But the international regulators are also coming up with new capital requirements and associated compliance standards. These will trigger “substantially higher compliance costs for all U.S. insurance companies,” the authors said. That should get some attention. As the saying goes, when money talks, people listen.
The level of regulation and supervision varies by carrier size, location and other factors. However, “insurance core principles” (ICPs) have been developed that apply to all insurers, the researchers said. That’s in addition to other requirements for various groups and yes, for global systemically important insurers (G-SIIs).
Initially, the regulators limited their global capital requirements discussion to how to supervise larger companies. However, the scope of capital standards “now seems to be steadily spreading to a point where it could become a de facto standard,” Mais and Sherwood said.
And the eye-popper? “International insurance regulations affect all domestic insurers, even those that do not operate overseas.”
Agents and advisors may have some thoughts about all that. Some may feel powerless to influence the influencers — they’re international, after all — but the field can still respond. Here are a few suggestions:
- Get up to speed on these developments.
- Learn the names and roles of the international influencers. (There are several others, in addition to IAIS and G20, all covered in the Deloitte report.)
- Monitor the marketplace for international influences that could affect distribution.
- Send views and suggestions to carriers, professional associations, blogs and maybe even the NAIC.
- Watch for opportunities (as well as competitive threats) that may open up in the shifting sands.
Unfortunately, monitoring IAIS just got a little more difficult. During its annual meeting in October, the members voted in closed session to end “observer membership status.” That means consumer advocates, insurance experts, various industry representatives and others will have to wait for an invite before attending certain IAIS sessions.
Does it matter? NAIC President Adam Hamm thinks so; he promptly objected. A few days later, NAIC passed a resolution supporting a bipartisan Congressional resolution calling for IAIS meetings to be open and transparent.
A few years ago, few industry people even heard of IAIS, so few would have noticed. Well, people are noticing now. For a reason.