Insurance Regulations

The development of any industry depends on the nature and the quality of its regulation. A good regulator, while protecting the interests of the consumer ensures efficiency of operations, transparency and fair play; it also ensures stability and the solvency of the industry. Regulations define the health of a country’s financial markets and the markets in turn, influence regulations.
Insurance regulations should be there to provide a framework with regard to tariffs, restrictions on foreign participation, etc,  to help growth and define the structure and competitiveness of the insurance industry.

Insurance regulations have fundamentally changed the insurance markets over the years. Too much regulation was causing many problems in the developed markets, and learning by example, the emerging markets listed below witnessed a series of de-regulatory activities.

• Asia
• Central & Eastern Europe
• Latin America

The insurance industry in most Asian countries is not fully developed and the same applies to their insurance regulations. The liberalization movement is giving insurers more freedom in pricing, product design and investment activities.

Desire to join the EU was the single most important factor that drove widespread reforms in the insurance markets of central and Eastern Europe. The first-wave candidates (Poland, Hungary, Slovenia) in particular started to bring their insurance regulations gradually in line with EU standards in the nineties.

Insurance regulations are already changing in Brazil, Argentina and Mexico which account for 75% of Latin American premiums. Government monopolies are being eliminated and foreign investment encouraged.

Re-regulation in the Insurance Industry

In order to create the kind of regulatory conditions needed to promote an efficiently functioning insurance sector, a series of re-regulation measures are taking place all across the world, particularly in the developed markets. There are three main areas of re-regulation within insurance regulations.

• International accounting standards
• Anti-money laundering
• Corporate Governance

The progress towards employing a common set of accounting standards worldwide gained momentum when the EU issued an order requiring all of its 7,000 public firms to adopt International Accounting Standards (IAS), by January 1, 2005. Canada, Hong Kong, New Zealand, Switzerland, South Africa, and Singapore are also expected to follow the EU’s lead. Adoption of international accounting standards is most likely to be followed by the Asian countries as well.

After the terrorist attacks on September 11,the US Congress promptly responded with aggressive new legislation aimed at broadening the scope of executive, judicial, and administrative powers to more effectively combat the terrorist threat. The Patriot Act, as it became known, made sweeping changes to the Bank Secrecy Act of 1970 as well as to the Money Laundering Control Act of 1986. In the EU similar anti-money laundering provisions have been in place for several years.

The accounting irregularities at major corporations like Enron and WorldCom led to major legislative changes and regulatory developments in the United States of America affecting corporate governance. Influenced by the passage of the Sarbanes-Oxley Act in the US, the movement toward stronger corporate governance is accelerating across the globe. Canada’s new insurance regulations are to be modelled on this act. In the United Kingdom, the Financial Services Authority established a review committee known as the ‘Tiner Review’ in September 2001, that set out to improve and strengthen the FSA regulations of insurance firms. In Australia, the bankruptcy in 2001 of HIH, the country’s second largest general insurer, amid charges of poor corporate governance, led to the establishment of an independent commission that is analyzing the reasons for collapse and the reforms needed to ensure better governance.

Together with Risk based capital supervision and the Convergence of financial sectors these are creating a new framework within insurance regulations.

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