Strong Regulatory Systems Recognize Global Differences

By Kevin M. McCarty | June 27, 2012

Insurance markets have evolved over the years to become increasingly global, interconnected, and convergent — a trend that will undoubtedly continue in years to come. The National Association of Insurance Commissioners (NAIC) is committed to coordinating with our regulator colleagues both domestically and internationally, to ensure open, competitive, stable markets around the world.

In this regard, the most important thing we can do is to promote a level playing field across the globe through strong regulatory systems that recognizes differences in regulatory regimes around the world. Our state-based system in the U.S. has a strong track record of evolving to meet such challenges.

The U.S. is the world’s largest national insurance market, with more than one-third of the total global market share. In fact, the U.S. had more insurance business written within its borders than countries ranked 2 to 6 combined in 2010, and many of our states are home to more insurance activity than most countries around the world.

Our market leadership, however, is not based only on market share or premium dollar amount. We believe U.S. state insurance regulators provide leadership in the international regulatory community by setting strong standards, developing creative solutions to new and existing regulatory challenges, and consistently seeking to increase transparency and understanding in our efforts to protect policyholders’ interests.

The Federal Insurance Office (FIO) has an important role to play as a representative of the federal government in international discussions, and we are building a constructive partnership. While we expect the FIO to increase its level of engagement, the fact remains that state regulators have ultimate responsibility for implementing any new international standards. It is therefore critical that any international discussions and agreements relating to regulatory prerogatives continue to be made with the full participation and agreement of U.S. insurance regulators.

There are a number of ways we as U.S. regulators are encouraging economic growth of the insurance sector for U.S.-based insurers. We continue to promote a global regulatory approach based on fundamental, collective principles of solvency and consumer protection. We also continue to promote transparency and due process in international standard setting, which are critical to consumer confidence in insurance products.

State regulators are keenly aware of the importance of international trade and trade agreements for economic development. As the Office of the United States Trade Representative (USTR) negotiates trade agreements such as the ongoing Trans-Pacific Partnership agreement and seeks improved market access for U.S. insurers, the NAIC provides technical expertise and advice.

In working with the USTR on technical provisions relating to insurance, state insurance regulators and the NAIC seek to ensure that agreements and policies under discussion will promote stable regulatory practices in other countries. We help our negotiators make the case that a liberalized market does not mean the weakening of regulatory standards by illustrating the openness of the U.S. market to foreign competition (over 20 percent of the U.S. insurance market is foreign controlled), yet we maintain an effective supervision of the market.

Our International Insurance Relations (G) Committee is tasked with strengthening international regulatory systems by interacting with international regulators, reviewing proposed laws and regulations for insurance supervisors in countries updating their regulatory structure and those with emerging economies, conducting educational seminars to provide an understanding of the U.S. system of regulation, and establishing fellowship opportunities between U.S. and foreign insurance regulators, among other things.

NAIC members and staff also are working on the development of a Common Framework or “ComFrame” for the Supervision of Internationally Active Insurance Groups (IAIGs). This project, conducted through the International Association of Insurance Supervisors, aims to make group-wide supervision of IAIGs more effective, foster cooperation and coordination among supervisors around the world and to close regulatory gaps. If done right, ComFrame has the potential to create a multi-jurisdictional approach to supervision that emphasizes robust oversight and cooperation while maintaining the proper balance between different jurisdictions.

Well-regulated markets and competitive markets are not mutually exclusive, and both are necessary to provide policyholders with the choice and stability they expect from their insurers. At the NAIC we will continue to coordinate with FIO, the USTR, industry, and our international colleagues to develop the types of regulatory schemes that promote open, competitive, stable, and well-regulated markets around the world.

Kevin McCarty is president of the NAIC and Florida’s Commissioner of Insurance.

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