BACKGROUND TO INSURANCE REGULATION
In the United States Insurance several issues arose in respect of insurance regulation, they include:
a. Whether insurance should be regulated by the Federal government. b. Whether the regulatory standards of insurance be different from other business because of its unique nature.
c. Whether regulators should control the rates insurers charge d. Whether the laws of demand and supply determine the rates insurers charge e. Should there be collaboration among insurers
f. Should collaboration be encouraged
g. Should collaboration be prohibited
Regulation began in the U.S. when the Constitution gave Congress the right to regulate commerce among states. However the following legal events had impact on insurance regulation:
1.Paul v Virginia – It was held that insurance was not an inter-state commerce and therefore not a federal regulation business.
2.Sherman Anti-Trust Act- It prevented insurers from coming together to control rates and coverages
3.The South-Eastern Underwriters Association decision which made insurance subject to Federal regulation
4.The McCarran- Ferguson Act restored most insurance regulatory responsibility to the states.
5.The Insurance Service Office (ISO) and the Attorney General Lawsuit – restricts how insurance rates were developed.
6.The Gramm-Leach Bliley Act 1999 – It is known as the Financial Services Modernization Act encouraged affiliations among banks, insurers and other financial services providers. The Act made clear the position that states are the primary regulators of insurers.
In the United Kingdom, the supervision of insurance could be traced as far back as 1575 when the Chamber of Assurance was founded for the registration of all marine policies issued. Modern supervision started in 1870 with the introduction of the Life Assurance Companies Act which made it obligatory for life assurance companies to make a deposit of ₤20,000 with the High Court before they could transact business. Today, the Financial Services Authority (FSA) given statutory powers by the Financial Services and Markets Act 2000 is the organisation responsible for regulating financial services in the UK.
The FSA's aim is to promote efficient, orderly and fair financial markets and help retail financial service consumers get a fair deal. The FSA was set up by government. The government is responsible for the overall scope of the FSA’s regulatory activities and for its powers. The FSA regulates most financial services markets, exchanges and firms. It sets the standards that they must meet and can take action against firms if they fail to meet the required standards. AUSTRALIA
Before 1998 the regulation of the Financial Services Industry were based on the institutions and not the regulatory function. Example: •The Insurance and Superannaution Commission.
•The Reserve Bank of Australia (RSA)
•The Australian Financial Institutions Commission
•The Australian Securities Commission
However the Financial Systems Inquiry which became known as The Wallis Inquiry recommended a new structure: 1.The Reserve Bank of Australia (RBA) to deal with Monetary policy and Payments Systems regulation; A payment system board was set up as a subsidiary of the RSA but will make payments independently of the RBA in areas of payment system regulation. They regulate both wholesale and retail payments. Wholesale Payments: High value electronics payments. They are usually made between large financial institutions or corporations regarding investments or transactions in the financial markets. Transactions in this system could be up to $135bn a day between banks. Retail Payments; Relates to regulation of retail payments instruments such as direct debit and direct credit transfers. 2.The Australian Prudential Regulation Commission (APRA) to deal with prudential regulation of: •...