Progress in making insurance regulatory changes has been slow, and there’s really nothing to indicate that the situation will change in the near future. The United States, however, has managed to make some relevant changes, despite the fact that it has 50 different regulatory bodies.
The U.S. also has a common language and legal system, overseen by the Constitution, as well as a common accounting system. The Non-Admitted and Reinsurance Reform Act (NRRA) has worked reasonably well in harmonizing surplus lines legislation and simplifying reinsurance. But further federal insurance reforms – part of the Dodd-Frank Act – are still held up by Congressional constipation.
Outside the U.S. the story is somewhat different. The International Association of Insurance Supervisors (IAIS) is making progress, albeit slowly, toward the implementation of protocols that will enable re/insurers to more easily conduct business on a global basis, and hopefully will lower their costs.
Europe, however, faces larger hurdles, as it must harmonize different legal and accounting systems, as well as 20 or more different languages. The first Q.I.S. questionnaire on Solvency II was distributed to the insurance industry in 2004. The start date envisioned was 2007, but that date has been constantly pushed back. Until recently it was 2013, then 2014.
The scope of the regulations has become so immense that the European Insurance and Occupational Pensions Authority (EIOPA) Chairman Gabriel Bernardino made the following statement at a conference on November 21: “Even if a credible timetable will probably point out to an implementation date not earlier than 2016, it should be possible in an interim phase to incorporate in the supervisory process of some of the key features of Solvency II, namely some elements related to Pillars 2 [risk management] and 3 [disclosure and transparency]. EIOPA is exploring this possibility, based on its powers under the EIOPA Regulation.”
Many of Solvency II’s issues remain unresolved: How are captives to be treated? What steps can, or should, be taken to lighten the regulatory burden for smaller insurers, especially mutuals? Should there be “too big to fail” provisions for large insurance groups? And, in some quarters, should the entirety of Solvency II even be applicable to property/casualty insurers?
EU regulators, alarmed by the scope of the financial crisis (which really only affected one major insurer – AIG), are like the proverbial hammer bearer, who sees everything as a nail. They have tried to provide for too much, when less would do. The whole process is now so complicated, as Bernardino’s remarks show, that even 2016 might be too early for implementing the regulations.