The Role of Governments in the Insurance Industry

The Role of Governments in the Insurance Industry

Royal Institute for International Affairs

London, U.K. 2 December 2002

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Robert P. Hartwig, Ph.D., CPCU, Senior Vice President & Chief Economist Insurance Information Institute 110 William Street New York, NY 10038 Tel: (212) 346-5520 Fax: (212) 732-1916 bobh@

Presentation Outline

Changing Role of Government in Insurance ? Historical/Traditional Role of Government ? Is Role of Government Expanding/Contracting? ? Role & Rule of Government Beyond Direct Regulation ? Is `Insurance Regulation' Obsolete or Marginalized? ? Summary & Conclusions ? Q&A

HISTORICAL ROLE OF GOVERNMENT IN INSURANCE

yFundamentals of Insurance Regulation

Traditional Solvency

Rate/Form Consumer Protection

Expanded View of Insurance Regulation

Ancillary

Pools

Guarantee Funds

(Re)insurer of Last Resort Mitigation/ Safety

Fiscal Taxes/Fees & Assessments

Stimulative

Income Redistribution

Political

Public Policy Political Agenda

Source: Insurance Information Institute

Rationale for Insurance Regulation

Why Should Insurance be Regulated? ? Contrary to public belief, there is no "right" to insurance

? Therefore need justification for existence of regulation

? Frequently cited reasons are market imperfections (e.g., ruinous competition), consumer protection (licensing), systematic risks (e.g., investment risk)

? Regulation has probably extended well-beyond these bounds in some jurisdictions

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