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.

7. A licensee shall manage conflicts of interest fairly, both between the licensee and its clients and between clients.

8. A licensee shall take reasonable care to ensure the appropriateness or suitability of its advice and discretionary decisions for any person or other entity that is entitled to rely upon such.

9. A licensee shall ensure that the assets of any client for which the licensee is responsible are adequately protected.

10. A licensee shall interact with the superintendent and other regulators in an open and cooperative way, and shall disclose to the superintendent any information relating to the licensee of which the superintendent would reasonably expect notice.

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Here are the New York department’s 10 principles for regulators:

1. Regulators, and the regulatory system as a whole, should assess risk comprehensively and concentrate resources on the most important areas.

2. Regulators should be accountable for the efficiency and effectiveness of their activities, while remaining independent and objective in the decisions they make.

3. Guidance from the regulator should be readily available and easily understood.

4. Interested parties should be consulted as appropriate prior to issuance of written guidance by the regulator.

5. When developing new regulations, the regulator should consider how they can be implemented and enforced using existing systems and data to minimize the administrative burden on regulated entities.

6. No investigation or inquiry should take place without an appropriate basis.

7. The regulator should not require a regulated entity to provide unnecessary or needlessly duplicative information.

8. All regulatory action should be proportionate to the issue being addressed.

9. Regulators should allow and encourage competition and innovation, while ensuring against insolvency and protecting consumers and markets, and only intervene as necessary to protect consumers and markets.

10. Regulators should respect the responsibility of a firm’s senior management for its activities and for ensuring that its business complies with requirements and hold senior management responsible for risk management and controls.