Chicago — Incoming White House Chief of Staff Rahm Emanuel recently told the Wall Street Journal, "you never want a serious crisis to go to waste."
This statement seemingly echoes the sentiment of a wide swath of parties in the insurance industry—regulators, legislators, lobbyists and carriers—who see the financial crisis as providing a unique opportunity to rewrite the rules under which the industry operates.
In that sense, the financial services meltdown has acted less as a cause for new regulations than a catalyst for ones already proposed. Both here and abroad, legislative initiatives that were languishing now seemed imbued with a new urgency.
Howard Mills, chief advisor to the insurance practice at New York-based Deloitte Touche Tohmatsu, told Insurance Networking News that he expects things to happen quickly. ‘It’s going to be a very active first few months when the new Congress gets in there,” he says. “The hearings will pick up immediately and we’ll see bills going to President Obama within months.”
Specifically, Mills, the former New York State Insurance Superintendent, expects perennially stymied efforts to establish federal oversight of insurance to gain traction.
“I think there is near certainty that you are going to have some federal involvement in the future,” he says. “It’s almost inevitable.”
In Europe, long-running endeavors to establish common regulations known as Solvency II are moving ahead with a new sense of urgency, say experts. This need for regulators to craft laws that will enable increased cooperation across jurisdictions, was a central theme at the annual conference of the Basel, Switzerland-based International Association of Insurance Supervisors (IAIS). “The global coordination of regulation is going to pick up steam,” Mills says. “The current economic situation is going to demand it.”
Another imperative, according to Mills, is risk management. The Solvency II regulations will require insurers to document their risk management regimens and to specify how they address global, systemic risks. “Risk managers need to understand the interconnectivity of the risks,” he says.
Yet, it will not only be insurance companies under the microscope. The efficacy of the independent credit rating agencies will also draw more scrutiny.
“Regulators need to rethink how they are going to put the opinions of rating agencies into the mix,” Mills says, noting the days of rating agencies as de facto regulators may be waning. “We now have reason to question the veracity and accuracy of some of the opinions that they have been rendering.”
Sources: Deloitte Touche Tohmatsu, INN archives, Wall Street Journal
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