Does one-size-fits-all regulation work for the P&C industry?

P&C insurance industry leaders called for bespoke, yet predictable, regulation at the Insurance Bureau of Canada Financial Affairs Symposium last week.

When asked broadly about regulation, Celyeste Power, IBC president and CEO noted no two carriers are alike, and so there there shouldn’t be a “one-size fits all” approach to regulating the P&C insurance industry.

“Regulation, to be truly effective, can’t be one-size-fits-all,” she said during a fireside chat. “The P&C industry, in particular, is made up of a wide variety of insurers with different business models and different levels of complexity.

“We intend to undertake a serious and sustained effort to emphasize the importance of a predictable, reliable, maybe even boring, regulatory environment.”

Regulators intend to promote the solvency and financial soundness of the industry, but the industry’s diversity means regulations impact each insurer differently.

“Often when people think of the insurance industry, they think of very big, well-funded, well-resourced companies,” Power added. “But…our industry is very diverse, and this level of regulatory compliance…can have a very, very big impact on the small- to medium-sized insurer.”

Since no two insurers are the same, the best regulatory approach is bespoke or tailored to the industry’s risks, Power said. “We’re also not the same as the banks, and we shouldn’t be treated the same when it comes to things like money laundering, cryptocurrency, or a range of other initiatives.”

Industry regulation, she said, should be used as a guidepost for insurers. “Regulation shouldn’t register on insurers’ ERM (enterprise risk management) plans.

IBC is seeking to slow down the rapid pace of regulation. Consultation between regulators and the industry has proved crucial to slowing down the pace of implementation, Power said.

“We’re pleased to hear that OSFI [the Office of the Superintendent of Financial Institutions] is aware of these concerns,” Power said. “I’m proud to say that our advocacy has paid off to the benefit of the industry as a whole. We’ve succeeded in slowing things down a little.

“OSFI has adjusted its annual risk outlook and deferred consultation timelines. We appreciate the fact that they’re willing to listen to reason.”

When it comes to regulatory compliance, the regulator’s expectations change with the institution, said Darrell Leadbetter, senior director of insurance and pension supervision at OSFI.

“Our expectations do change quite a bit based on the size of the institution, so that we understand how certain parts of ecosystem work and will be managed,” he said during the OSFI regulatory update.

“What we want to see is: Does management understand? Does management and the board understand the risk that they’re getting involved in? And what steps, if any, are they taking for them?”

For the new regulatory guidelines on Third-Party Risk Management in particular, Leadbetter said the goal for insurers is that they understand their risk. “We’re not necessarily [asking] that you will manage everything.”

Feature image by iStock.com/petekarici