We need to protect policyholders while fostering a vibrant insurance industryDate de parution : 05/21/2012 Source : The Hill Times Personne(s)-ressource(s) : Wendy Hope
Prudent and careful regulation does not need to lead to over-regulation. The potential costs of taking an ultra-conservative approach to regulation can be extremely high.
By Frank Swedlove
In Canada, we are blessed with strong regulators and regulation at both federal and provincial levels. A common theme in recent years has been how well Canada’s financial services sector has weathered the 2008 global economic downturn. It is frequently pointed out by political and industry leaders that not one Canadian financial institution—whether bank, insurance company or investment company—collapsed or required a bailout as a result. A further major strength of our domestic system has been the strong and positive relationships that have existed for many years between regulators, officials, and the financial services industry. We have all traditionally worked together to ensure that the decisions that have been taken are informed, appropriate and effective; and this has served Canada well.
Canada has also garnered international recognition for the prudence of its approach and the safety of its system.
A Jan. 30, 2012, peer review conducted by the Financial Stability Board noted that “the good performance of the [Canadian] financial system both during and after the crisis provides further evidence of its soundness and resilience.”
The Canadian life and health insurance industry certainly agrees that there is a need to ensure that Canada has strong and predictable regulation and an effective accounting regime. We have always supported the view that financial services regulation needs to be reviewed on a regular basis to ensure that it remains robust and continues to serve its customers well. However, prudent and careful regulation does not need to lead to too much regulation.
The potential costs of taking an ultra-conservative approach to regulation can be extremely high. It can mean that Canadian consumers and businesses pay more for their financial products, or do not have access to products available elsewhere. Legitimate business opportunities do not get financed and consumers have more difficulty saving for retirement. Over-regulation can have as negative an effect on the economy as inadequate or shoddy regulation. In addition, the Canadian financial services industry, and particularly life insurance, is an international business. Canadian standards for regulation, capital and accounting well above the international norm will make it difficult for our companies to compete, affecting our ability to create well-paying jobs back home.
So what can the regulators do to make sure that all the participants in Canada’s financial system remain in step and continue to thrive? They must ensure that any new regulatory measures are based on clear evidence of their necessity. They need to rigorously test regulatory measures and capital requirements so that they meet objectives and minimize unintended consequences. And, finally, they need to benchmark their standards relative to other countries, taking care to ensure that Canadian industry is not unduly disadvantaged.
There has been much in the press and analysts’ reports about how our accounting and regulatory requirements in Canada have made it more difficult for our industry to compete with other countries’ regimes, particularly the U.S. We have had over a century of success in this business and have weathered the recent crises as well or better than most in the world. Our high regulatory standards played an important role in this, but so did our own prudent approach to management. We must allow an industry with such a strong record of the past to be able to exercise its strengths and comparative advantage for the future. Regulators must contribute their share through the application of a balanced approach—one that takes into account the protection of policyholders while continuing to foster a vibrant insurance industry supplying needed products and services to Canadians.
Frank Swedlove is president of the Canadian Life and Health Insurance Association. Established in 1894, CLHIA has 65 members accounting for 99 per cent of the life and health insurance in force in Canada.
Reprinted with permission from The Hill Times, May 21, 2012