Regulatory timetables are too ambitious: GFIA chair
The unrealistic and unnecessarily ambitious timetables set around the implementation of some global regulatory regimes with profound consequences for insurers risk hindering the industry’s ability to support the ambitious economic growth targets agreed last month by G20 finance ministers.
That was the stark warning that has been made by the chairman of the Global Federation of Insurance Associations (GFIA). Frank Swedlove, who is also the president of the Canadian Life & Health Insurance Association, said any new regulatory measures should be carefully considered and tested before full implementation to avoid unintended consequences.
“Time must always be allowed for a cost/benefit analysis in advance of any new regulation. Unintended consequences must be carefully considered,” he said, referring to the current work on global capital standards by the Financial Stability Board (FSB) and International Association of Insurance Supervisors (IAIS) and also to the Organisation for Economic Co-operation and Development's (OECD) work on taxation.
“As the FSB and IAIS design new global capital standards — under the pressure of a highly ambitious timetable — it is important that insurers’ exposure to market volatility is not overestimated. Such artificial volatility could reduce insurers’ willingness and ability to invest long-term in areas such as infrastructure. It could also have a significant impact on the availability and price of insurance products.
“The insurance industry looks to the Australian G20 Presidency to ensure there is appropriate political scrutiny before any new global standard is agreed,” said Swedlove.
He was speaking following a series of meetings this week with the Australian G20 Presidency. He made the point that the insurance industry plays a crucial role in supporting the economic growth aspirations of economics both through the financial security insurers offer through efficient risk-transfer mechanisms and the substantial long-term investments the industry makes.
He pointed out that without insurers’ cover for risks, many aspects of today’s society and economy could not function. For example, of the $186 billion of damage caused by major disasters in 2012, $77 billion, or 41 percent, was covered by insurers. The insurance sector is also one of the world’s largest institutional investors, with $26.8 trillion of assets under management in 2012 and $4.6 trillion of new premiums to invest annually. It is also a significant holder of government and corporate bonds.
“It is vital that the ability of insurers to offer risk-transfer and retirement products and to invest long-term is maintained and encouraged. The link must always be made between international regulatory initiatives and the G-20’s long-term growth objectives,” said Swedlove.
