Insurers are preparing for a discussion on working out global standards for insurance supervision that, once in place, have the ability to change the industry and the insurance market in the U.S.
The proposed global financial-regulatory changes of International Association of Insurance Supervisors (IAIS) go beyond the cooperation and coordination many insurers have sought. The IAIS is holding its annual conference in Washington next week, beginning Sunday, with the nonpublic portion held the first part of the week.
With the G-20's bank-heavy Financial Stability Board (FSB) offering glimpses of a future supervision, some in the industry fear that the push for bank-centric, onerous and costly regulations on the insurance industry will disrupt core processes and create an uneven trade system, setting up an uncertain arena of players where some are identified by certain criteria as systemically important or globally active.
State insurance regulation "will be graded" on compliance with new, global standards starting in 2014, says Robert Gordon, senior vice president, policy development & research, Property Casualty Insurers Association of America (PCI).
"We don't want the U.S. to get outfoxed in these discussions so insurers end up with global, bank-centric rules," Gordon said.
FSB asked for insurance-industry input last week in a first-of-its-kind hearing, where the FSB was gathering information on enhanced capital resiliency, rapid resolution of insolvencies and enhanced supervision.
Some worry that FSB, and thus the IAIS are focused on loss absorbency, which loosely translates to higher capital requirements for large insurers — in terms of size, leverage and interconnectedness — as well as smaller but internationally active players.
PCI emphasized during a conference call today with reporters the importance of working with the IAIS to rein in what it sees as some of the overreaches of ComFrame [Common Framework for the Supervision of Internationally Active Insurance Groups] and other IAIS projects.
"What's troubling in recent years is global standards that are set by unelected, unaccountable bodies," says David Sampson, President and CEO of PCI.
"What is at stake for U.S. marketplace if we go blindly down this road [with rules] that are not suited for U.S. marketplace—I think this is very troubling," Sampson continues. "This is a highly competitive marketplace." He says if layers of regulations are imposed — international upon federal upon state — then regulatory-induced, rather than market-driven, consolidation of the insurance industry would take place.
PCI's team says it is going to try and refocus the discussion on regulatory cooperation rather than on new mandates for as-yet-undefined capital standards and regulations that are sometimes at odds with U.S. corporate governance procedures.
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Elizabeth Festa
Elizabeth Festa is a longtime business and financial services reporter with a specialty in insurance regulatory and legislative coverage at the federal and state level. She is based in Washington, D.C.
