Prospects for Insurance Regulation in 2013

Progress in making insurance regulatory changes has been slow, and there’s nothing to indicate that this situation will change in the future.

The United States has, however, made relevant changes. Although it has 50 different regulators, there is a common language and legal system, overseen by the U.S. Constitution, as well as a common accounting system. The Non-Admitted and Reinsurance Reform Act (NRRA) has worked reasonably well in harmonizing surplus lines legislation. But further federal insurance reforms – part of the Dodd-Frank Act – are still held up by Congressional constipation.

The International Association of Insurance Supervisors (IAIS) is making progress, albeit slowly, toward protocols that will enable re/insurers to more easily conduct business on a global basis, and will hopefully lower their costs.

Europe, however, faces larger hurdles, as it must harmonize different legal and accounting systems, as well as 20 or so different languages. The first Q.I.S. questionnaire on Solvency II was distributed to the insurance industry in 2004. The start date envisioned was 2007; that date has been constantly pushed back. Until recently it was 2013, then 2014.

The scope of the regulations has become so immense that the European Insurance and Occupational Pensions Authority (EIOPA) Chairman Gabriel Bernardino, on Nov. 21, 2012, made the following statement:

“Even if a credible timetable will probably point out to an implementation date not earlier than 2016, it should be possible in an interim phase to start to incorporate in the supervisory process of some of the key features of Solvency II, namely some elements related to Pillars 2 [risk management] and 3 [disclosure and transparency]. EIOPA is exploring this possibility, based on its powers under the EIOPA Regulation.”

There are many issues still to be resolved: How are captives to be treated? What steps can, or should, be made to lighten the regulatory burden for smaller, mostly mutual, insurers? Should there be “too big to fail” provisions for larger insurers? And, in some quarters, should Solvency II even be applicable to property/casualty insurers?

EU regulators, alarmed by the scope of the financial crisis (which really only hit one insurer – AIG), are like the proverbial hammer bearer, who sees everything as a nail. They have tried to provide for too much, when less would do. And, they have made the process so complicated that 2016 may even be too early for implementation.