The costs associated with compliance and disclosure will continue to rise as insurance regulators and rating agencies increase their scrutiny of the industry. (Re)insurers that operate on a global scale, for example, may wrestle with the complexity of multiple capital requirements and the return targets of investors. Smaller companies, often with fewer resources, may be forced to allocate a higher percentage of senior management’s time to compliance. It will become increasingly more important for (re)insurers to avoid unnecessary and redundant activity when seeking regulatory approval.
In addition to the increased administrative cost of compliance, higher risk-based capital requirements often reduce the strategic flexibility of insurance company operations and ultimately lower returns.
While these evolving quantitative and qualitative reporting requirements are burdensome, they help regulators more effectively track and manage risk and reduce harm to policyholders. There is also, of course, the potential for overregulation leading to risk aversion, reduced competition in the form of higher premiums and fewer product options.
A delicate balance must be struck between the interest of government regulators, (re)insurers and policyholders. When successful, appropriate regulations can improve underwriting discipline, protect consumers and build more resilient markets.