Onerous regulation could force smaller insurers to shut up shop
A one-size-fits-all regulatory approach and global regulatory convergence more generally is a big concern for the US property/casualty (P&C) industry, Jim Wallace, incoming chair of PCI and the chief executive of GuideOne Insurance, told PCI Today.
Wallace believes that Euro-centric or bank-centric capital standards could cause difficulties and confusion if applied to the US insurance industry.
“There’s been a lot of discussion with our European and international counterparts about how financial services ought to be regulated. To apply a one-size-fits-all approach just doesn’t make sense for US P&C insurers,” he said.
“The banks had the problems in 2008, not the P&C insurance companies. We don’t want regulation designed for non-US companies to be placed onto US companies.”
Wallace explained that the cost of complying with this type of regulation will ultimately either be passed on to consumers or individual insurers will need to absorb it, weakening insurers or even causing small companies to shut up shop.
Changes occurring in the industry more broadly will be the focus of PCI this week, with a particular focus on global regulatory convergence, societal issues and technology.
“Our industry is currently in the midst of major change and disruption,” said Wallace.
The launch of revolutionary companies such as Uber, which helps individuals share transport, has spurred an emerging sharing economy, raising a number of important questions for insurers.
With this challenge in mind, PCI has introduced a model law, now passed in 28 US states, which has closed an insurance gap that might have existed without such innovative measures. In 2016, the association plans to push forward its plan to pass the law in other states.
Meanwhile, other emerging technologies such as self-driving cars and drones have sparked further challenges for the insurance industry.
“Personally, I don’t believe that self-driving cars will push the biggest insurance line in the US out of the industry. However, a number of people do believe that the personal auto industry could be under threat,” said Wallace.
The topic of cyber security is also on the minds of the PCI, given the limited understanding on the severity of cyber attacks.
Wallace believes the potential impact of cyber is all-encompassing.
“GuideOne provides personal auto insurance and we don’t believe we provide cyber. But what if, in the future, somebody figures out how to cause automated vehicles to crash. Is this a cyber issue? I believe so, and we would need to pay for it,” he said.
The association is also ready to fight its battles in the court room. PCI filed a lawsuit against the US Department of Housing and Urban Development (HUD) following its ruling on so-called disparate impact. The rule, which finds that any housing practice that has a “disparate impact” on minority groups constitutes a violation of the Fair Housing Act’s discriminatory effects standard, was challenged by the association.
At summary judgment, according to Wallace, the judge found HUD’s rule to be “arbitrary and capricious” and the department didn’t consider the public comments made. Now, HUD must consider all of these comments before making its next move.
“If this goes away, great. If not, we are prepared to fight,” explained Wallace.
