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Issues & Insights

Don’t Let Europe Regulate Our Insurance Industry

On a bipartisan basis, Congress has consistently passed legislation reaffirming and preserving the state-based insurance regulatory model in the United States. The House unanimously did so last Congress, reaffirming our view that the U.S. regulatory system should not be tampered with by any international agreements. 

The American version of state-based insurance regulation, which has served consumer and insurer needs quite well for more than 150 years, is the envy of much of the world. It has proven to be adaptable, accessible, and effective, with relatively few insolvencies and no taxpayer bailouts. Each state has adopted laws and regulations tailored to the unique needs of its consumers, even as all states maintain a common financial solvency system through uniform accreditation requirements. And since no single insurer dominates the property/casualty insurance market, the failure of a single insurer would not threaten the entire marketplace.

Unfortunately, the clear success of state-based insurance regulation in our country is under a new threat from a one-size-fits-all International Capital Standard (ICS). If the U.S. were to adopt this European-inspired system, the state-based model as we know it would be forever changed. As American and European negotiators discuss a path forward at the International Association of Insurance Supervisors (IAIS), our eyes should be focused on the actions and words of the men and women who hold the future of the American model in their hands. 

The Federal Reserve and the Treasury Department have assured Members of Congress publicly that they are not looking to use the adoption of an ICS to “change…our insurance system” and that they are “looking to have an international agreement that works with our system.” While their assurances are welcome, the sincerity of their words will be tested this Fall.

The final version of the ICS is to be completed at an IAIS meeting in Abu Dhabi in November. We’re raising this issue yet again because the Fed and Treasury’s colleagues at the European Insurance and Occupational Authority (EIOPA) are already taking a victory lap, already presuming that the European approach will be made the global standard.

In their recent annual report, EIOPA says that they achieved their goal of having “Solvency II as the practical implementation of the…ICS.” Given that Solvency II is completely different than the regulatory scheme that protects consumers and ensures a vibrant insurance industry here in the U.S., that’s quite a victory for our European friends.

Moving forward, we are concerned about how Treasury and the Fed are going to deal with these developments. Now, more than ever, Members of Congress must pressure our representatives at this meeting to stand up and forcefully oppose any deal that excludes formal recognition of the U.S. regulatory system.

Anytime we engage in international discussions to potentially apply the prescriptive, creditor-based ICS to U.S. insurance groups, we put our state-based system in jeopardy. If our representatives are unsuccessful in achieving formal equivalence for the U.S. system in the ICS by November, they must vote no on the final proposal and Congress would have their back.

Ted Budd is a Member of Congress from North Carolina’s 13th District and French Hill is a Member of Congress from Arkansas’ 2nd District. Both serve on the House Financial Services Committee.

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