The insurance and reinsurance industry faces an unprecedented global ‘regulatory tsunami’ that will test the mettle of the sector as it responds to proliferating regulatory demands.
That is one of the key points to emerge from a policy makers’ debate at the Economist’s Insurance Summit 2014, during which issues such as Solvency II and emerging capital standards were addressed by a panel of commentators.
John Fitzpatrick, secretary general of the Geneva Association says that the industry already faces three capital standards and can expect the introduction of three more globally over the coming three years.
“Basel’s 1 to 3 took the banking industry 26 years to implement and they are still tinkering with those standards. Developing three capital standards in three years would set some kind of land speed record in terms of regulatory standards”.
Fitzpatrick cautions that the pace of regulatory development will not give the industry sufficient time to assess the impact of changing capital requirements and suggests that brakes should be applied.
He questions the motives behind regulators’ desire to increase capital requirements. “Conceptually, I believe that regulators want us to carry more and higher quality capital in order for there to be fewer failures.”
“However, I would question how many failures there have been and whether they have been systemically significant in the way that banking failures have been”.
Bart De Smet, CEO of Ageas, speaks in a similar vein, arguing that regulation is considered to be one of the most significant risks by insurance CEOs globally.
He bemoans the lack of coordination, the cost and the implications of national one-up-man-ship that is increasingly evident across jurisdictions, which is further exacerbating this burden.
“We spend too much time going through the technical details of regulation and capital requirements, when we should in fact be focused upon our business”.
De Smet and Fitzpatrick’s views were countered by Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority and Amanda Blanc, chief executive, AXA commercial lines and personal intermediary.
Bernardino says that “in times of uncertainty consumers are inevitably more demanding when it comes to regulation”.
He admits that there is a coming tsunami of regulation, but that insurers need to view the impending Solvency II regime positively. “Solvency II will drive product innovation, transparency and responsibility.”
Blanc says that the industry has to accept that regulators want to see good outcomes for consumers and that this should ultimately be in alignment with what insurance companies do.
“Regulation is an issue of trust. The financial service sector has shown that it can’t be trusted and we cannot therefore expect to escape the interest of regulators”.
Blanc says that by looking to what customers want; insurers can also satisfy the demands of regulatory authorities—hence AXA’s focus on incentivising staff based on customer satisfaction, she says.
She adds that as an industry, insurers should not lie awake worrying about regulation, but the focus should be on customers.
Bernardino adds that Solvency II should not be viewed as an exercise in compliance, rather it should be seen as a chance to develop a robust risk culture. “I want to see risk tools implemented, with strategy linking risk and capital”.
regulation, Solvency, regulatory