At the Insurance Information Institute’s (I.I.I.) 2018 P/C Joint Industry Forum, held January 16 at New York City’s Marriott Marquis, panelists stressed the importance of a balanced regulatory environment in insurance between state and federal government, with some expressing concern that the current political environment has led to more intrusive regulation.

Mark Watson III

“Where we’re headed in the U.S. is double regulation,” said panelist Mark E. Watson III, president and CEO of Argo Group.

He added that while the banking industry in the past faced a similar challenge and found a solution with the establishment of state and national banks, “we haven’t quite figured that out for our industry.”

Although he said regulation of insurance serves a purpose to ensure the industry is paying claims, as its corporate mission is securing the future of its policyholders, employees, shareholders and the communities where it operates, there needs to be a balance.

“At the end of the day, business is business, and business is going to flow where there’s the least amount of friction,” he explained. “Just keep that in mind.”

Panelist Bruce G. Kelley, president and CEO of EMC Insurance Companies, presented the view that insurance has to be a somewhat heavily regulated organization, however, because money is being taken in that will be paid out later.

Bruce Kelley

“We’re paying for asbestos losses on accounts that we stopped writing in 1988 for people that were exposed to things in the 50s,” he said, adding that he believes regulation needs to be at all levels – state and federal.

“You have to have a federal understanding of the insurance industry,” he said. “Under McCarran-Ferguson, they delegated that to the states, so there needs to be an office in Washington that understands insurance and is advising. On the state level, there needs to be robust regulation, because we’re dealing with contracts that we sell that respond to state law on property and liability issues.”

The McCarran-Ferguson Act of 1945 gives states authority to regulate “the business of insurance” without the interference of federal regulation, unless federal law specifically says otherwise. While most panelists agreed that certain regulation of the industry is a good thing, some expressed concern that it has gone too far.

“As far as regulation is concerned, certainly the pendulum has swung dramatically to more and more and more,” said panelist Brian Duperreault, president, CEO and director at AIG. “I think getting back to some kind of more normal approach is necessary.”

Brian Duperreault

Duperreault added he is a firm supporter of state regulation, as he believes it has held up well in times of financial crisis and doesn’t need to be supplemented at all by federal regulation.

“I just think that the states have done a good job,” he said. “If you’re a U.S. company, and you’re in the global marketplace, there’s a reason for some coordination between the federal government and the state. But generally speaking, I think the states are fine.”

Watson pointed to the Bermuda insurance marketplace as an illustration of what he sees as a benefit to a lighter regulatory environment.

“That marketplace isn’t going away,” he said. “Part of the reason it’s not going away is why people are there – it’s not about tax, it’s about regulation. You’re based in a place where you have one regulator, versus 50 plus one.”

Possible change to the Bermuda insurance marketplace has been a topic of discussion recently, as the latest federal tax reform closes the so-called “Bermuda insurance loophole” that has allowed non-U.S. insurers and reinsurers with U.S. subsidiaries to avoid paying U.S. taxes by ceding reinsurance to their non-U.S. affiliated reinsurers in Bermuda and the Cayman Islands, as previously reported by Insurance Journal. This change has been a goal for years of the Coalition for American Insurance, a coalition of 12 major insurers including The Hartford Allstate, Travelers and W.R. Berkley.

The coalition said it strongly supported the final version of the tax reform law due to the loophole closure, noting that the change “will ensure more equal tax treatment for U.S. based insurers and consumers by addressing a longstanding loophole that allowed foreign insurance companies to move their U.S.-generated insurance profits abroad to avoid tax,” Insurance Journal previously reported.

With the passage of the new tax law, some I.I.I. Forum panelists were optimistic that change to the Bermuda marketplace would be minimal, stating that Bermuda is one of the largest underwriting hubs in the world that reinsures the majority of the world’s property/casualty insurance risk.

“I think the Bermuda insurance market serves an appropriate purpose, and I don’t think that’s going to change with this tax change,” Duperreault said.

Although Kelley noted that the federal tax reform serves as “another form of regulation,” overall, Duperreault said he believes the insurance regulatory environment in the U.S. has already begun to even out and will continue to do so going forward.

“There don’t seem to be any initiatives out there for ongoing federal regulation, and I think that’s good,” he said. “I think it’s heading back to a reasonable place.”