The evolving US regulatory landscape

July 2016

For most of the history of modern insurance, regulation has been a local affair, shaped by the laws, conditions, and customs of specific geographies. In the United States, this meant a regulatory regime focused at the state level, with few provisions for group or consolidated supervision. This regulatory structure endured even as insurance groups reached beyond local boundaries to become multinational and global. The disparity between regulatory and corporate structures came to a head in the 2008 financial crisis, when subsidiaries threatened the solvency of groups and, in some cases, the stability of the financial system.  

Though several years have elapsed since the crisis, group-level capital standards are now coming to fruition. In the United States, the National Association of Insurance Commissioners (NAIC), the organizing body for state insurance regulators, and the Federal Reserve (Fed) are each making significant progress in developing approaches to group-level capital for US-based insurers. At the same time, a parallel process is under way through the International Association of Insurance Supervisors (IAIS) to set a minimum global standard for group-level capital. Depending on their final form and how well different standards align, the new capital rules are likely to improve group oversight and solvency but may also have important implications for product availability and cost.

While leading insurers and supervisors are keen to settle the question of appropriate group-level capital, several IGLN participants noted that this is still, in the words of one director, “fighting the last war.”  Beyond this, many IGLN participants see rapid structural change in the insurance industry and said that regulation, like insurance itself, will have to become more adaptive.

On June 1, 2016, industry participants, along with key policymakers and supervisors including representatives from the Federal Insurance Office, the NAIC, and the Fed, met in New York to discuss the evolving US regulatory landscape. For a list of meeting participants, see Appendix 1 on page 13. This ViewPoints provides a summary of these discussions and centers on three key themes:

  • US supervisors are making progress in modernizing domestic capital regimes, but obstacles remain

  • Despite some challenges, the international standards development process is moving forward

  • Unprecedented external dynamics are forcing industry and supervisors to adapt