The International Monetary Fund said changes in U.S. insurance regulation with an eye on national and international guidelines have made real progress, but the effort remains unfinished with a long way to go.
“While recent reforms are bringing benefits, the regulatory system for insurance remains complex and fragmented, and reform should be considered to address the resulting risks,” the IMF assessment of insurance regulations concluded.
The agency credited the U.S. with making a number of changes, such as establishing the Federal Insurance Office, which focuses, in part, on looking for reform and development priorities. Kudos also go toward giving the Federal Reserve Board new power to address consolidated supervision of insurance groups, as well as promises to give U.S. regulators the power to negotiate and address new international standards for insurance regulation.
“State regulators have been adjusting to the new regulatory architecture, at the same time progressing important reforms such as the solvency modernization initiative and significantly strengthening group and international supervision,” the IMF report said. It noted, however, that “many of these changes are still a work in progress.”
The report concluded that transition at the state level from a regulatory approach that is more rules-based to “more principals-based regulation and risk-focused supervision is progressing but is taking time and facing obstacles.”
According to the report, the development of Federal Reserve Board regulation pertaining to insurance is moving slowly and needs to move in its own direction away from bank regulation. At the same time, the agency said, the FRB’s supervision has helped, in part by “bringing an enhanced supervisory focus to group-wide governance and risk management.”
The IMF also supports work being done by the National Association of Insurance Commissioners on the effort, which has helped review and challenge the various regulatory tweaks as they have been made and established. As well, the agency gives federal and state regulators credit with communicating and working to build something functional.
“Cooperation between state and federal regulators is developing, based on the complementarity of their approaches, although it has further to grow,” the IMF said.
Here are some areas in which the IMF wants to see further developments:
- Group capital standards that would better reflect the economics of the products.
- The ability for states to set group-wide valuation and capital requirements, with the Federal Reserve Board getting responsibility for developing a valuation and capital standard.
- Set insurance-specific governance requirements that would hold boards responsible for governance and controls that respect and protect policyholder interests. Have either state or Federal Reserve Board supervisors do this.
- Review governance and funding arrangements for state insurance regulators to make sure they avoid potential political influence.
- Make sure regulators at all levels have the skills and expertise to handle new regulatory reforms.
- Consider reforms that would address the differences that remain between state insurance regulators and also state and federal regulators, concerning both regulation and supervision.
Source: The International Monetary Fund