Speakers debate value of global regulatory standard
May 27, 2014 by Matthew Patane
An international move to put a global regulatory standard over U.S.-based insurance companies could increase costs to consumers, but it could also help prevent a future financial crisis, speakers at this week’s Global Insurance Symposium said.
The suggested global standard would create one system for determining how much capital insurance companies would need to have, meaning they would have to save more in their reserves instead of spending money on new products or company expansions.
The capital requirement, opponents to the standard argue, would put an undue burden on insurance companies in the U.S. Those companies would then have to pass extra costs on to their policyholders.
“The additional costs of capital will not be borne by shareholders and bondholders, but by policyholders,” said Ben Nelson, the CEO of the National Association of Insurance Commissioners.
A singular system, Nelson and others said, could decrease competition in the insurance market and reduce the amount of money insurance companies could spend on new products and lower-priced premiums. That, in turn, could increase the costs for consumers.
Proponents, however, have said the single system would help quell the possibility of another financial crisis like the one that occurred in 2008 by taking some of the risk out of the insurance market. A more consistent system across markets, they say, will also fit with the increasingly global nature of the insurance industry.
“Under such evolution, we need a regulatory approach that is somewhat consistent across sectors,” said Naruki Mori, the assistant commissioner for international affairs of the Japan Financial Services Agency.
The International Association of Insurance Supervisors Executive Committee, where Mori is a vice chair, announced last year that it is working on establishing a risk-based global capital standard by 2016. Full implementation would come in 2019.
In addition to pressures from the federal level following the financial crisis, that international plan has caused concern among U.S.-based insurers who prefer the nation’s current system where regulations and standards are determined by state.
“The big issue post-the-financial-crisis, and as a result of Dodd-Frank, is the federal government is coming into insurance regulation in a very big way,” said Larry Zimpleman, chairman, president and CEO of Des Moines-based Principal Financial Group. “It’s just going to take us a few years to sort of harmonize and figure out how those (supervisory) entities work together.”
Another worry among insurers, Nelson said, is that the proposed regulations under the global standard do not fit with the insurance sector.
“This is a banking system of regulation that some would like to impose over our system of regulation, which is insurance regulation. They’re not the same,” he said.
Multiple symposium speakers alluded to how well the insurance sector fared during the financial crisis compared with other industries as another reason a global standard is not necessary.
When introducing a panel Thursday, for example, Faegre Baker Daniels partner and lawyer Charlie Richardson paraphrased a Warren Buffett quote: “Warren Buffett famously remarked, ‘When the economic tides go out, you see who is swimming naked,’ ” Richardson said. “When the economic tides went out in 2008 and 2009, much of the insurance sector was clothed in Midwest-modest, neck-ankle swimsuits giving the unidigital salute to the bucknaked banks, investment banks, auto sector and so many others that were dropping like flies.”
Mori acknowledged there are concerns about a single standard and said should a global standard be established, it would have to be done correctly.
“There is an efficiency gain in having a global standard,” Mori said. “But we have to be careful because we want to maintain the functionality of our insurance companies.”
What’s next for the symposium?
The first Global Insurance Symposium had yet to come to an end, but organizers said they were already planning to do another in 2015.
“We’ve already made the decision that we’re going to move forward and do the second annual Global Insurance Symposium next year,” said Greater Des Moines Partnership CEO Jay Byers.
The Partnership, the Iowa Insurance Division and the Iowa Economic Development Authority organized this year’s symposium. The conference ended Thursday after three days of speeches and panels focused on insurance regulatory issues.
At the very end of the symposium, Iowa Insurance Commissioner Nick Gerhart told attendees that the event had brought in about 350 guests during its three days from Tuesday to Thursday.
At least 125 of those came from outside the U.S., according to the symposium’s organizers.
Speaking after the event, Gerhart and Byers said they still wanted to assess this year’s symposium but were looking to have more participants at next year’s event.