Posted on 29 May 2009
How should the U.S. government oversee the insurance industry? Patricia Guinn, Managing Director of Towers Perrin and head of the firm's Risk and Financial Services business, offered some recommendations to Congress earlier this month.
"Federal oversight of the insurance industry needs to recognize the industry's unique characteristics," Guinn said in testimony before a subcommittee of the House Committee on Financial Services. "We recommend that the federal government avoid a 'one size fits all' approach derived from the larger banking industry."
Other key points made by Guinn to the House lawmakers include:
* The insurance industry has been adversely impacted by the financial crisis, but not to the degree experienced by the banking industry.
* Insurers, though a comparatively small part of the financial services industry, have a disproportionate impact on the general economy.
* Although current regulation is generally effective, there are some gaps — such as systemic risks that may best be addressed at the federal level. Other aspects of regulation should follow the best practices that have been demonstrated by regulators at the state level.
* Any federal regulatory oversight of the financial industry needs to be implemented cautiously, and it should recognize the distinctive features and market practices of the insurance business.
* Regulatory oversight should be complemented by strong professional standards and a role for risk management professionals with appropriate training.
The performance of insurers during the financial crisis may hold lessons for other financial services institutions, particularly as they relate to the integration of risk and capital management and the spreading of risk, Guinn said.
She also urged lawmakers to recognize that complex risks are best evaluated and managed by risk management professionals, including actuaries, who have the requisite skills and objectivity, and who conduct their work consistent with a well-developed body of professional standards.