Regulation (of insurance) is a process by which the behavior of insurers is monitored in order to verify their compliance with the laws, rules and directives that are officially established. Licensing is a procedure by which an organization receives (or retains) the opportunity to conduct insurance business, and hence to be subject to regulation as an insurer.
Each national presidency exercises zealous control over the licensing and regulation processes (even if certain powers are ceded to the international community, as in the EU). In some countries, such as the United States and Canada, state or provincial legislatures have great autonomy over the insurance business. In these cases, the state insurance commissions (or their equivalent bodies) are the immediate regulators.
The reason why national governments retain their powers over insurance, even when the insurance business and its corporate clients have embraced the idea of globalization, is firstly that insurance absorbs a huge share of national investment potential and second, that huge political or economic potential can be applied. harm to a party if its citizens or companies take out insurance policies with a foreign insurer that is beyond the control of the regulatory body and fails to fulfill its obligations.
Therefore, each government is determined to reserve the right to have the final say on who can offer insurance products on the territory of its country, as well as to determine the intricacies of the regulatory system. Governments agree to accede to international agreements that set common standards for regulation and the conduct of regulators, both on a regional basis (eg in the EU) and globally, through the World Trade Organization, as long as they can keep to themselves. final control. The World Trade Organization works to ensure that all countries allow larger insurers from other countries to obtain an insurance license everywhere. In cases where a government feels that the vast resources and experience of American or European global insurers would compete unfairly with local insurers, it is not surprising that it resists giving all participants open access to the emerging insurance market. Tensions between insurers (and the governments they can influence) in various modern markets and in many markets that are officially recognized for future growth will be a major theme in the insurance world for at least the next two decades.
In these circumstances, regulatory arbitrage will continue to exist: insurers will decide in which state or country to locate the group's symbolic headquarters and how many subsidiaries (with which other shareholders participate) to maintain or build in areas where the parent company is not permitted to operate. direct business. The decisions that companies will make on these issues will depend on: the immediate conditions for obtaining a license; expectations about the likelihood that political systems are likely to change legislation and rules within the insurer's business planning period, as well as from forecasts for economic growth and disposable income in the countries concerned.
Due to this diversity, a narrow analysis of licensing procedures or regulatory systems of any country cannot be offered. Certain general principles are formulated here. However, it is important for any practicing insurer to study in depth the regulatory system of each country with which it plans to do business (or in which it has inherited business from a previous period).
International standards for the regulation of financial services (including insurance) are discussed both at intergovernmental level and at international meetings of regulators and insurance vendors (sometimes in separate meetings and sometimes by sharing their different views at seminars and conferences). . There is still no clear global set of regulatory standards or licensing criteria, there is a tangible move in this direction, and professional insurers need to keep up with the latest developments in this area.
In almost all legislation, licensing procedures include general conditions. These conditions apply both to new companies that start in the country or state concerned and to insurers that are already established in another state or country and that wish to obtain a license to conduct business in the territory concerned:
The process of obtaining a license is usually complex and lengthy. This is done in order to allow civil servants and licensing ministers to obtain sufficiently detailed information to justify their decision and to prevent anyone wishing to set up an insurance or reinsurance business as a money laundering screen. or to defraud potential buyers of the policies it intends to offer. In some countries, there are opportunities for bribery during this process, as a result of which insurers who obtain licenses in this way are subject to special scrutiny if they apply for licenses in more effectively regulated territories.
Source: David E. Bland "Insurance: Principles and Practice"