CEA tells G-20 not to confuse insurers with banks

In a letter to José Luis Rodríguez Zapatero, Prime Minister of Spain, Tommy Persson, President of the CEA, said that the CEA ‘firmly supports’ the work being done by the G-20 to enhance the global financial system and align global financial regulation. To help ensure that work is based upon accurate and robust data and information the CEA also presented its new report Insurance: a unique sector — Why insurers differ from banks. Mr. Persson explained that the report describes the ‘fundamental differences’ between the business models and risk profiles of banks and insurance companies. He also said that it highlights the implications for the insurance sector of regulatory reactions that do not reflect these differences.hide“Insurers and reinsurers were neither at the root of the last economic crisis nor the main recipients of subsequent government support. They were obviously affected by the financial crisis, but emerged from it relatively unscathed. Largely due to their distinct business model, with upfront, long-term funding and relatively little exposure to liquidity risk, they contributed to stabilizing the economy and absorbing risks,” wrote Mr. Persson in his letter to the Spanish Prime Minister. “Nevertheless, we observe with concern policy responses stemming from G-20 commitments that do not give sufficient recognition to the differences between the insurance and banking business models,” he continued. Mr. Persson said that there appears to be a ‘worrying trend’ to impose regulation that is designed for one financial services sector to other sectors. “Problems and regulatory responses have been identified primarily in the banking sector, but final recommendations are often presented as being applicable to the financial services sector as a whole, without due consideration of the implications for other sectors. The differences between sectors must however be taken into account when designing regulatory regimes,” he said. “What is valid for banking is not necessarily valid for insurance. The CEA is convinced that some of the measures being proposed are inappropriate for the insurance sector,” continued Mr. Persson. The CEA believes that the ‘unintended consequence’ of such a ‘read-across’ of regulation from sector to sector would be to promote ‘herd behaviour’, by which all sectors behave in the same manner. This he argued would prevent the insurance industry from effectively performing its stabilising role in the economy, he added. The CEA’s new report (www.cea.eu) makes 12 recommendations for ways to strengthen regulatory and supervisory frameworks that take account of the specific characteristics of the insurance business model. The CEA urged the G-20 leaders to ‘take note’ of these recommendations and to give ‘careful consideration’ to the specific characteristics of financial sectors in the design of all new policy proposals, as well as to the potential cumulative impact of macro- and micro-prudential measures.

CEA tells G-20 not to confuse insurers with banks

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