Having several different regulators use several different approaches to oversee an insurer may help detect problems early.
Therese Vaughan, chief executive officer of the National Association of Insurance Commissioners, Kansas City, Mo., makes that argument in a policy brief released by the Networks Financial Institute at Indiana State University.
In the brief, Vaughan discusses the implications of the new Solvency II European insurance regulation reforms for U.S. insurance regulation.
Vaughan will be presenting the brief June 15 in Minneapolis, during the summer meeting of the NAIC, at a session organized by the NAIC’s Solvency Modernization Initiative Task Force.
Vaughan emphasizes in a note that the views expressed in the brief are hers and do not necessarily reflect official positions of the NAIC or of NAIC members.
“Much of the recent work in supervision, both in banking and in insurance, has been characterized as a movement from a rules-based approach to a principles-based approach to supervision and regulation,” Vaughan writes.
Vaughan says regulators and others have assumed that:
- Companies had an incentive to properly manage their risk.
- Regulators could distinguish between firms that effectively managed risk and those that did not, and that the results generated by an insurer’s own internal risk-assessment models were an effective measure of risk differentiation.