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November 05, 2007 at 12:30 PM
Empire State officials today started the process of creating a “principles-based” system for regulating insurance.
New York Insurance Superintendent Eric Dinallo released a draft of a proposed regulation, Regulation 185, that includes 10 proposed principles for the insurance industry and 10 proposed principles for regulators.
The New York department is asking for comments from the industry and from consumers, and it is putting the proposal on the agenda of the new New York State Commission to Modernize the Regulation of Financial Services.
“The principles are reasonable rules that can be easily incorporated into the business philosophy and operations of regulated parties with little or no expense,” Dinallo says in a statement. “In fact, most regulated entities should already be operating in accordance with such principles.”
Advocates of principles-based regulation want to follow the example set by the United Kingdom’s Financial Services Authority.
FSA officials have established general principles and encouraged use of commonsense and sophisticated risk analysis techniques, rather than by relying on static formulas.
Some critics of the principles-based approach have argued that it might not work in the United States, because U.S. companies believe following strict, detailed laws and regulations can help protect themselves from lawsuits.
Adoption of the proposed New York principles would not expose companies to additional private lawsuits because, generally, in New York, “only the regulator can enforce the principles,” Dinallo says.
Unlike some other states, New York does not usually give private parties the right to enforce insurance laws by filing lawsuits, Dinallo says.
Here are the New York department’s 10 principles for industry:
1. A licensee shall lawfully conduct its business with integrity, due skill, and diligence.
2. A licensee shall take reasonable care to organize and control its affairs responsibly and effectively, with adequate risk management systems.
3. A licensee shall maintain adequate financial resources.
4. A licensee shall observe proper standards of market conduct.
5. A licensee shall pay due regard to the interests of its clients and treat them fairly.
6. A licensee shall pay due regard to the information needs of its clients, and communicate information to them in a way that is clear, fair and not misleading.
