Firstly, we saw EU proposals for a systemic risk council, then a review of UK regulation by FSA, finally the Obama proposals for a systemic regulator.
In the US, the financial crisis seems to have been born out of a range of products which were clearly unsustainable. These products did not fall under state regulation of Insurance – they were banking orientated, regulated at the federal level. A clear systemic risk shone through but there was no functional regulator, hence these new proposals.
US insurance regulators are rigorously defending their track record of solvency regulation and do not want federal intervention, especially as part of a banking initiative. However, certain insurance groups called “Tier 1 financial holdings companies”, who offer a wide range of financial products (insurance, mortgages, securities etc), are perceived to be potential causes of systemic risk in the financial system. The systemic regulator would predict the shocks which could occur and act accordingly. Both states and federal governments seem to have an interest, therefore, they will need to work effectively together and cut through the politics for the sake of the overall economy.
Most recently the US Treasury mapped out its proposals for an Office of National Insurance as part of the Obama Administration’s proposal for financial reform. If adopted the ONI would monitor all aspects of the insurance industry, except for health, and represent the US in international insurance matters. This latter point is important to the ability for the US to engage authoritatively with EU regulators and fits neatly into the current work on reinsurance regulatory modernisation.
There seems to be a momentum for some form of federal involvement along with continual state regulation. Both sides need to work together, recognise their reciprocal merits and make it happen. If they manage this quickly it could be very influential in the changes expected within the EU and UK specifically.
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