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Regulation: Riding the Wave or Getting Swept Out to Sea?

Prior to last month’s Presidents Section Mid-Year Meeting, we sent a brief survey to all registrants to gauge their views on several of the key topics – regulation, interest rates, growth strategies, etc. – that were on the agenda for the conference.  We sent a similar survey to the registrants of this week’s Canadian Section Meeting.  The responses from executives on both sides of the border was virtually identical.


I wanted to highlight a few of the most interesting results of those surveys – specifically to questions about the expanding impact of regulation on the financial services business – and call your attention to a terrific blog post on the same topic by a colleague of mine, Shaun Tarbuck, CEO of the International Cooperative and Mutual Insurance Federation.

First, let’s address the views of CEOs when it comes to regulatory issues.  We asked CEOs to rank  “the primary drivers of fraternal mergers.”   Seventy-five (75) percent of respondents stated that “declining surplus/RBC” was the number one reason for such mergers.  Second on the list – ahead of factors such as “ineffective sales force,” “diminishing relevance of common bond,” and “sustained low interest rates – was “regulatory pressure.”

We then asked CEOs to rank the primary regulatory challenges facing fraternals.  Corporate governance topped that list, followed closely by risk focused exams, cost of regulation, and unclaimed property rules.

Regulation also ranked high on the list of headwinds faced by society CEOs.  Prolonged low interest rates was the most significant headwind, according to the CEOs who responded to the survey.  Increased regulatory pressure came in a close second.

The bottom line for most member society leaders is that dealing with an increasingly complex, costly, and, at times, contentious regulatory environment detracts from our ability to fulfill our financial and fraternal missions.  Regulators aren’t likely to roll back the clock for fraternals – if anything, it is very likely that fraternal oversight will become more similar to regulation of our commercial insurance competitors over the next few years.  And that may not be all bad.  Ultimately, regulatory improvements, particularly in the areas of corporate governance and solvency protection for consumers, may help make fraternals even more attractive to the next generation of members.

Nonetheless, there has to be a balance between regulation that actually enhances competition, improves sustainability and benefits consumers at a reasonable cost, and regulations imposed “just because we can.”  Take a look at Shaun’s post about the growing influence of banking regulation on the insurance industry, both here in North America and around the world.  Regulatory competition may actually be limiting competition between providers and reducing the number of competitors on the playing field – exactly the opposite of what effective regulation should strive to achieve.

The Alliance shared the results of our recent surveys with the five state regulators on the panel at the Presidents Mid-Year Meeting and with federal regulators in Canada.  All of them were appreciative of our willingness to share our concerns with them and discuss them in an open and honest manner.  One thing is for certain: the days of hiding in the corner and hoping no one will notice us are over.  The Alliance’s goal is to work more cooperatively with regulators – many of whom share a keen interest and understanding of the important role that fraternals play in both the marketplace and the community.  Increasing awareness and understanding of who we are and what we do will help both fraternals and regulators reach that delicate balancing point of “just right” regulation that allows the market – not policymakers – to determine success.

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