External Forces Impacting the Insurance Industry: Threats from Regulation

James J Schiro ()
Additional contact information
James J Schiro: Zurich Financial Services, Mythenquai 2, CH-8022 Zurich, Switzerland.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2006, vol. 31, issue 1, 25-30

Abstract: Regulatory interventions must be designed to meet economically sound goals. I argue that, although this may sound simple in theory, in practice it is not. Today's perpetually changing environment requires regulatory frameworks and processes to constantly adapt. At least for the insurance industry such regulatory responses – or a lack thereof when in fact they are needed – can be a serious source of risk. In this article, I highlight some of these threats that I believe to be of special importance. The process of designing new regulation is not always perfect. Too often regulators react to political pressure or regulation emerges through litigation and not in response to sound economic criteria. This can deeply impair contractual certainty and thereby entail far-reaching implications for the insurance industry. Another threat to insurance is that the design of regulatory frameworks increasingly fails to clearly distinguish insurance from banking and other financial services. This leads to the risk that the insurance industry will increasingly be forced to comply with regulation that is not optimally geared towards its business. Perhaps the most important threat though, is that regulation fails to recognize the integration of borderless markets. As markets continue to transcend borders, national regulation increasingly spills over from one local jurisdiction to another leading to the risk of conflicting regulations. Moreover, differing local regulations impair the realization of economies-of-scale and lead to excessive compliance costs. Local and regional regulatory solutions should be questioned and new approaches that span the supranational and global levels considered. Finally, I believe the only way to ensure that regulation will be flexible enough to keep up with the dynamics of insurance markets is for it to be principles-based as opposed to rules-based. The Geneva Papers (2006) 31, 25–30. doi:10.1057/palgrave.gpp.2510064

Date: 2006
References: Add references at CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.palgrave-journals.com/gpp/journal/v31/n1/pdf/2510064a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/gpp/journal/v31/n1/full/2510064a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:gpprii:v:31:y:2006:i:1:p:25-30

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/41288/PS2

Access Statistics for this article

The Geneva Papers on Risk and Insurance - Issues and Practice is currently edited by Christophe Courbage

More articles in The Geneva Papers on Risk and Insurance - Issues and Practice from Palgrave Macmillan, The Geneva Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().