“Global Regulatory Change for the Re/Insurance Industry”. That was a title from a story in the Intelligent Insurer back in September and, especially for the captive insurance industry, it feels like the squeeze of one’s head in a vice.
The industry been in the crosshairs from a number of threats that I anticipate will continue to develop over the next few years: (1) excessive regulation resulting from insufficient knowledge; (2) the weakening of sound regulatory structures based on a desire to attract business; and (3) efforts to impose new or increased taxes. The change is that these threats usually emanated from Congress or the NAIC, but now we see them coming from other sources from individual states to the murky scene of international quasi-regulation. The International Association of Insurance Supervisors (IAIS) – yes another group that needs to show its regulatory muster – continues to work on a risk-based global Insurance Capital Standard (ICS) and it is creating Basic Capital Requirements (BCR) and Higher Loss Absorbency (HLA) requirements. VCIA recently submitted comments on a captive insurance regulatory white paper from the IAIS that exposed its overreach on regulation as well as inconsistencies in the regulatory framework suggested for captives. The NAIC has raised regulatory, legal, and accounting concerns associated with the ICS and does not want the standard to favor one regulatory approach over another. The NAIC also has its Own Risk and Solvency Assessment (ORSA) requirements and the U.S. federal government continues to increase its involvement in financial services regulation. Solvency II is another concern for insurers, as it takes effect at the start of 2016. Had enough jargon and acronyms yet?
The report from Guy Carpenter indicates that these evolving quantitative and qualitative reporting requirements may help regulators more effectively track and manage risk and reduce harm to policyholders; but it also could lead to overregulation and reduced competition in the form of higher premiums and fewer product options. The good news is that captive crusaders, like Vermont’s Dave Provost, have been very effective in stemming the flow of these types of quasi-regulations. Still, I can feel the vice tightening ever so slowly…
Thank you all very much, and I look forward to hearing from you.
Rich is right on the money with this comment. The threat to state regulation (and therefore captive regulation) used to be merely from Congress with the NAIC providing the threat of over-regulation in the name of “uniformity”. Now, the threat is from multiple sources, including the US Treasury and FIO, which seem to want to impose international standards on state-base regulation. This means that the problem is exponentially more complex.