New York has issued a draft of a proposal that would establish a foundation on which to build a system of principles-based state regulation.
Proposed Regulation 185 was introduced by New York Insurance Superintendent Eric Dinallo on November 5.
The draft includes 10 principles for industry as well as 10 principles for regulators. The draft will be distributed for discussion by the industry and consumers and will be on the agenda of the New York State Commission to Modernize the Regulation of Financial Services.
A principles-based system seeks to look at companies individually rather than applying formulas to determine risk.
“As a code of conduct, the principles are reasonable rules that can be easily incorporated into the business philosophy and operations of regulated parties with little or no expense. In fact, most regulated entities should already be operating in accordance with such principles,” Dinallo said. “Importantly, the principles will not expose companies to additional private lawsuits because New York’s Insurance Law generally does not provide for private rights of action. Only the regulator can enforce the principles. This is, in fact, a significant competitive advantage for New York.”
Dinallo said the proposed regulation expands on actions the department has already undertaken including requiring property insurers to create a reserve for catastrophes, such as hurricanes, and having top-rated non-U.S. reinsurers post the same collateral as U.S. companies.
The 10 industry principles are as follows:
(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.