The degree of global oversight of systemically important insurers will remain lighter than for systemically important banks, says Oxford Analytica.
Competitive global pressures are leading to a commonality in certain key aspects of insurance regulation — as some regulators seek to avoid disadvantaging their country’s companies in global markets. However, the regulatory regime for insurers remains heterogeneous in comparison with the regulatory regime for banks and securities houses (see Basel ‘flexibilisation’ may be reversed ).
With more differentiated regulatory regimes across economies, multinational insurance companies have a powerful incentive to relocate to jurisdictions that reduce regulatory costs.
Recent International Association of Insurance Supervisors (IAIS) proposals concerning the criteria for identifying global systemically important insurance companies, which centre on the methodology for identifying these firms, are often seen as the start of a more global regulatory framework for the industry.
The methodology would involve three steps — collecting data, assessing it and implementing a process of supervisory judgment and validation. Once an insurance company has been identified as a globally systemically important institution, the national regulator is expected to work on a plan with it for reducing its systemic risk via a number of channels, such as higher capital requirements in order to increase its loss-absorbing capacity.
Despite the drive to promote a global regulatory framework for insurers, actual oversight and implementation continues to be at the national or regional levels — as happens with banking, despite Basel III. Moreover, the absence of an institution such as the Bank of International Settlements (BIS) means that the IAIS proposals are even more open to wide interpretation than the Basel III rules.
For details, see: Uneven insurance regulation fuels risks $$