Captive industry’s future bright, but challenged by regulation: NAIC presidentReprints
SCOTTSDALE, Ariz. — The U.S. state-based system of insurance regulation is under frequent scrutiny by federal and international regulators, and the captive insurance sector is getting caught up in these debates, said Julie Mix McPeak, president of the National Association of Insurance Commissioners.
The captive insurance industry’s future remains “so bright because of the industry’s entrepreneurial spirit,” she said at the Captive Insurance Companies Association’s 2018 conference in Scottsdale, Arizona, on Monday.
“While pure captives continue to make so much sense for corporations looking to self-insure for many of its own risks, I’m most excited to see so many of the commercial market risk challenges being solved by creative captive programs,” she said. “From health insurance solutions in the continually contracting commercial market to new risks that the traditional insurers are hesitant to address like cannabis, cyber security and big data, this industry has always responded.”
But the regulatory environment is not without challenges, she said.
“The state-based system of insurance regulation in the United States is under frequent scrutiny by our federal and international colleagues, particularly as it relates to financial oversight and group supervision of systemically important insurance groups,” she said. “And your industry is included in those debates because of captives that finance and securitize capital and reserving requirements in the United States, specifically because of the transparency differences that exist between captives and the commercial markets for these financing mechanisms.”
NAIC regulators have dual competing goals, which are consumer protection and a healthy and vibrant marketplace, she said.
“We think competition is one of the best consumer protections that we can afford,” she said. “But I will tell you a lot of regulators, particularly globally and some at the federal level of the United States, think additional conservatism is the way to ensure consumer protection. We at the NAIC don’t believe that.”
“Until the time that we can work to demonstrate our reserving and capital requirements are more appropriate for the industry, we are looking to prove that we are responsible supervisors of large insurance groups that may contain captive insurers wherever those are domiciled,” she continued. “And it’s for that reason that debates around global capital standards and systemically important insurers under (the Dodd-Frank Wall Street Reform and Consumer Protection Act) have necessarily included discussions of insurance holding companies and the affiliated captives and the risks associated with those structures. It’s in this regard that we should continue to work together, both as a vibrant and viable industry and as regulators.”