Considering the currently unsettled and chaotic disposition of regulatory reform, few could fault insurers for waiting for the dust to settle before making changes to their operations.
However, a new report from Boston-based Celent says insurers can start preparing now for changes likely to come. The inaugural report from Celent’s Boardroom Series of monthly briefs for insurance companies says absent a finalized law, insurers can look elsewhere for indications of where things are heading.
One place is the recent Obama administration whitepaper on financial regulation. Though the paper was long on rhetoric and short on details, insurers can glean insights from it. One conclusion to be drawn is that any new regulations will likely focus on squelching systemic risk. The whitepaper called for establishing the Office of National Insurance (ONI) within the Treasury Department. Among other duties, the ONI would monitor insurers for signs of systemic risk. However, Celent notes the fact that the whitepaper sidesteps the contentious issue of an optional federal charter for insurers likely means any new regulation will be additive to current state regulations.
“The recent administration announcement supports our previously published view of a federal structure that will coexist with existing state-by-state regulation,” the report, authored by Celent Senior Analyst Mike Fitzgerald, states. “Even as the proposal is debated in Congress, we do not expect legislators to spend the time or political capital to reach agreement that would lead to coordination between the two structures.”
Yet, Fitzgerald says the federal and state roles should be pretty well delineated.
“In practical terms, the federal government will likely be interested in product-level information, and the states will continue to dive into coverage and pricing details,” the report states. “The new federal regime will likely be looking for product-level information to identify significant exposures and the possible effect on insurer solvency.”
What’s more, Fitzgerald predicts that once the new federal requirements are announced, insurers can expect aggressive timelines for compliance. Accordingly, he advises that carriers begin to prepare now. Among the steps he advocates are mapping compliance databases, reaching outside the enterprise to ensure vendor partners are ready and assembling a cross-functional team within the enterprise responsible for the regulations.
"Organizations can take proactive steps now that will increase the efficiency and effectiveness of their response,” he says.
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