Insurers are lumped in with banks and other financial institutions by global financial regulators too often. This approach is potentially harmful as specified in a new report by the Global Federation of Insurance Associations (GFIA) titled “Insurance: A unique sector.” The report highlights the important distinctions between insurance and other financial sectors. It also details how the insurance industry is truly unique in the financial sector.
The report is released as organizations like the Organization for Economic Cooperation and Development, the International Association of Insurance Supervisors, and the Financial Stability Board are considering new regulations for the financial services sector. Regulators and standard-setters are reviewing financial stability risks arising from the non-bank financial intermediation (NBFI) sector, which is broadly defined to include industries such as investment and money market funds, private equity funds, venture capitalists, microloan organizations, and cryptocurrencies.
Discussions of new regulatory proposals should not tie the insurance industry in with the banking or NBFI sectors. As this new report shows, creating unjustified additional regulations that fail to recognize the differences in our industries undermines the effectiveness of insurers and their contributions to society.
The insurance industry serves people and global economies by pooling and diversifying risks, which can reduce financial uncertainty and make any losses more manageable. The industry is highly regulated, well-capitalized, and has a proven track record of effective risk management.
In addition, life insurers’ investments are typically long-term, making them less exposed to short-term market volatility. These long-term investments allow life insurers to pay consumers’ claims when accidents or tragedies occur – whether it’s next week, next year or decades from now.
The insurance industry’s promise to pay consumers’ claims following a tragedy is a unique promise you can take to the bank.