Comment: NAIC should not let Europe write our insurance rules – Insurance News

Should US state insurance regulators cede regulatory authority to foreign regulators outside our borders?

NAICNAIC
Doug Dean

This is not how any regulatory environment should work. But today, many of the rules being considered by the National Association of Insurance Commissioners are being issued by global insurance regulators and non-governmental organizations. This is even worse than federal insurance regulation – it is international regulation of US insurance markets.

This problem is slowly growing. After the 2008 financial crisis, it made sense for global insurance regulators to meet and compare notes to assess the industry’s resilience. But when European regulators led the International Association of Insurance Supervisors to agree to European standards at the center of global capital, US state insurance regulators rightly objected. Our system of insurance regulation allows for a balance between state sovereignty and cooperation between states to protect consumers and the solvency of insurers.

State regulators vociferously opposed the imposition of global capital standards that would have mirrored European markets and disadvantaged US consumers, US. This was the right move. It is disappointing and perplexing that years later, the NAIC is allowing European and other global regulators to regulate our markets through the back door, when we refused to let them in through the front door.

In particular, the NAIC is clamping down on market innovation in life insurer investments and responding to international push for offshore reinsurance. In an unusual move, the NAIC spotlighted an official of the European International Monetary Fund at the last NAIC meeting to rebuke members for failing to adequately address issues the IMF has determined are a problem for the US. officials must stop.

The NAIC’s proposal to increase the capital charge on asset-backed securities is a clear example of this bowing to outside pressure. Last year, the NAIC rushed a 45% fee on the equity portion of asset-backed securities without stopping to understand the asset or consider the data. The rationale for the move was that the asset class was “rapidly growing”. One wonders why regulators didn’t just feel a sense of urgency to understand the asset and gather data instead of rushing to shut down investments with zero evidence of a problem.

We believe, and recent third party data indicates that the asset is highly performing and the previous 30% fee was a reasonable assessment of risk. By imposing the increased fees, regulators have simply rushed insurers away from an appropriate (potentially riskier) investment that is not based on data. This is sending a clear signal to life insurers that they cannot renew for the sake of policies.

Adding insult to injury, the NAIC has just proposed expanding the scope of this punitive charge to include property and casualty and health insurers. The process by which this charge was plucked out of thin air is being held up as a model for use by regulators any when they don’t understand an asset class that insurers invest in, with the current focus on “funds”. Shutting down innovation is never the answer. The NAIC should take the time to understand these assets without allowing personal biases and preconceived notions into insurance regulations.

State regulators have good reason to trust the rigorous regulatory system we have built over many decades in this country. Every single state has robust tools to continuously monitor insurers’ solvency and market behavior and protect policyholders. The insolvency record of US insurers is much better than that of the banking system. This is true for one reason – state insurance regulators need to stop taking instructions from global constituencies that don’t understand our markets and regulatory regime and get back to allowing innovation in the insurance industry.

Doug Dean served as Colorado Insurance Commissioner from 2003-2005. Dean also served as Majority Leader of the Colorado House of Representatives from 1999-2001 and Speaker of the Colorado House from 2001-2003. Contact him at [email protected].

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