27 February 2015 Insurance

Regulation must allow innovation: Goldberg Segalla

If insurers are to stay relevant in the modern world, they must compete with ILS funds for new classes of business and must do so in an effectively regulated manner.

This is according to Clive O’Connell, a partner at law firm Goldberg Segalla, speaking to Intelligent Insurer.

O’Connell said that regulation must not frustrate innovation but must be designed to allow for sustainable innovation.

“At a time when the global economy is facing new and previously unimagined risks, on the one hand, and when historically profitable areas of business for insurers are being commoditised or are disappearing, on the other, innovation is crucial but, unless insurers can innovate in product form and move beyond simple insurance or reinsurance contracts with all the necessary formalities that they entail, the industry will lose out to new and alternative capital,” he said.

O’Connell added that, in the past, insurers’ attempts to expand their capabilities in this way have ended badly.

“In the late 1970s, ‘tonners’ written in the aviation market and incursions into the credit default swap market more recently, ended in disaster, with strong regulatory reaction,” he said.

“In those cases, however, the business was accepted with little or no regulatory oversight. It was not the form of acceptance of risk that was wrong, it was that the business was written without supervision and with no regulatory infrastructure to control it.”

While O’Connell believes that regulation plays an important role in the industry’s success, he said that it must leave room for innovation.

“Without such an approach, insurers and their regulators will leave the field open to alternative capital and their lighter regulatory environment,” he said.

To read the rest of the feature on the Intelligent Insurer website, click here.

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