Cross-accountability in Insurance Regulation

Debates continue among Congressional members and industry leaders regarding the form of insurance regulation in the U.S. Regardless the form of regulation they support – state regulation, national regulation or optional federal chartering – they all agree that the insurance industry must be subject to close regulation/supervision, that the regulation must be effective, and that the regulatory agency must be efficient. Nevertheless, most of the bills submitted in recent years seem to reflect mainly the political motives or business objectives of politicians and industry leaders, respectively. They fail to recognize why regulation exists and who must be ultimate beneficiaries of the regulation in the insurance market. This paper attempts to offer answers to these questions. Particularly, the author discusses the importance of insurance regulation from a theoretical perspective and by examining the objectives stipulated in the insurance acts and regulations of selected jurisdictions. The discussion focuses on market (conduct) regulation, as the measures in this area are less structured than in prudent (financial and accounting) regulation. The author concludes that all parties of interest – the regulator, the insurance company (and the intermediary) and the consumer – need recognize the importance of cross-accountability to each other for the development of sound insurance market. The author recommends that the government self-regulates its quality of consumer services to improve regulatory efficiency, the insurance company implements an effective internal risk management program to minimize conflicts with clients (or cases of malpractices), and the customer learns that he or she bears the consequences of poor decisions for insurance consumption.