The Future of Financial Services and Insurance: Risk and Regulation at Home and Abroad

Last week, the National Journal hosted an event that was underwritten by Zurich, “The Future of Financial Services and Insurance: Risk and Regulation at Home and Abroad.” Sean Kevelighan, Head of Group Public Affairs at Zurich, provided remarks, amongst a variety of industry leaders.

The event highlighted the growing importance and need for globally active insurers as well as the need for an international capital standard in the face of regulatory fragmentation. The event featured keynote remarks and interviews with Senator Richard Shelby, Chairman of the Senate Banking, Housing, and Urban Affairs Committee, and Representative Emanuel Cleaver, Ranking Member of the House Insurance Subcommittee, and a panel discussion on insurance capital standards that included Aaron Klein of the Bipartisan Policy Center, Andres Portilla of the Institute of International Finance (IIF), and Therese Vaughn, Ph.D. of Drake University and former Iowa State Insurance Commissioner.

In his opening comments, Kevelighan highlighted the stability of the insurance industry’s business model and highlighted companies like Zurich that proved to be a source of strength in the most recent financial crisis. “Throughout the financial crisis, insurance proved itself again and again to be a deeply-rooted source of strength in our financial system. The source of stability rendered from the basic business model of insurance – long-term asset management in order to pay policyholder claims. So as we begin to look forward, it is important to understand that the idea behind today’s push for regulatory modernization and the adoption of a global insurance capital standard is not about the crisis.”

Senator Shelby (R-AL) discussed a variety of topics that fall under the purview of the Senate Banking Committee including reforming Dodd-Frank, regulatory relief for small and regional banks, the Ex-Im Bank, and tax reform.

On Dodd Frank, Senator Shelby acknowledged that the bill created laws in areas that were previously unregulated, which created complications. “We’ve got a big piece of legislation that covers a lot of ground and gets into areas that perhaps we haven’t been before,” said Shelby.

Representative Cleaver (D-MO-05) discussed reforming Dodd-Frank from a House perspective, how insurance plays into Dodd Frank, the protests in Baltimore and how they relate to the broader U.S. economy, and Congressional gridlock.

“Compromise is an inseparable part of democracy. If we don’t have compromise, we don’t have a democracy that works,” said Cleaver.

He also highlighted how the financial crisis shined a light on regulatory gaps in the insurance industry: “The US insurance industry is of course primarily regulated by the states. However, the consequences of the crash revealed that the extent to which our U.S financial regulatory framework had allowed for supervisory gaps to grow.”

The afternoon of events concluded in a panel discussion that was a conversation centered upon where the industry is headed as it moves more towards harnessing the benefits of globalization with panelists offering perspectives on regulations at both the national and international level.

As former Iowa state insurance commissioner, Vaughn provided insights rooted in her experience at the state level and the need to ensure that the impacts of international harmonization are accounted for: “What I really worry is that it is leading to a world where we have one set of insurance companies that are under one set of regulation that actually reduces the ability of this industry to provide stability in times of crisis, which is when it’s historically done.”

Portilla, of the IIF, built on this idea, citing that international alignment actually contributes to stability and increases efficiencies, “There is a lot of inconsistency in international approaches here—Europe, Asia, here in the U.S. I think there needs to be a lot of additional dialogue at the international level – FSB, IAIS – before we have a clearly harmonized coordinated approach. I think countries – the U.S. – might be affected from that perspective as far as competitiveness, unless we have some harmonization.”

Finally, Klein capped off sentiments expressed by his fellow panelists, touching upon the fundamental difference between banking and insurance and the need to regulate each differently and accordingly based on activity: “In banking, which is very different than the business of insurance, bank runs are a classic thought through problem that are the result of a systemic panic. And so, what do you do as a regulator—you regulate what you know. What do you know? You know institutions and you know banking. So you’re going to regulate the world like institutions and banking, instead of thinking about more what’s the business model, what’s the activity, what’s the practice. How do I tailor and change this approach?”