Since the financial crisis regulators have been concerned about overall financial stability and ways to oversee the aggregate risks and impacts the insurance industry both suffers from and could create or contribute to for the greater economies of the U.S. and the world. The NAIC and the IAIS both see an important regulatory role for insurance supervisors in overseeing these macroprudential concerns. Had there been no insurance company playing a significant role in the 2008 crisis insurers may be not addressing these concerns, but since one insurer was engaged in activity that had a potential impact on overall financial stability the whole industry has been included in the regulatory excess.
The focus on financial stability and macroprudential oversight is best illustrated in the following supervisory trends:
higher capital requirements to avoid future insolvencies altogether;
emphasis on group supervision instead of legal entity to ensure the overall financial impact is considered;
increased data demands to provide regulators with better information about macro-economic trends and more aggregate information on the activities of groups; and many other conservative approaches to regulatory oversight.
NAMIC supports financial stability in the U.S. and globally. A stable economy helps NAMIC members in several respects – more consistent and stronger investment returns; more predictable claim costs; stable premium growth; and overall predictable business patterns. However, the methods supervisors have decided to use to ensure such financial stability are often suspect, costly and, most important, unsuccessful in accomplishing the goal they seek to achieve.
Financial stability is not an issue that insurance supervisors alone can impact on a piece meal basis through insurance regulation. It is a government and global issue that requires participation across financial sectors and across international boundaries. The attempts to require extreme levels of insurance capital or overly conservative insurance enterprise risk management will not just result in costs to the industry, but could have the opposite effect of damaging the insurance industry. Too often supervisors forget that the traditional insurance industry did not fail during the crisis. They continued to pay their claims and keep their promises to their policyholders. In fact, the traditional insurance industry has been identified as a stabilizing influence.