Insurance Regulation in the Public Interest: The Path Towards Solvent, Competitive Markets*
Harold D Skipper
Robert W Klein
The rationale underlying competition is that market forces are best at allocating resources and enhancing consumer choice and value. Further, the evolution and internationalization of financial services markets could significantly promote economic development throughout the world. Thus, moves to render national and international insurance markets more competitive should be encouraged, taking into account the level of development of each market and recognizing the necessity for reasonable safeguards to protect the public. In this respect, the World Trade Organization (WTO) Financial Services Agreement marked an important milestone in the evolution toward competitive markets. However, market access alone does not ensure vigorous, fair competition. Regulatory reforms also are needed. The next step toward structuring insurance markets that better serve the interest of each country's citizens is regulatory reform built on a set of pro-competitive principles designed to ensure competitive, solvent, and fair markets. This article offers such a set of principles that are designed to permit national insurance markets to better serve the public interest. These principles are not an argument for elimination of regulation. In fact, pro-competitive regulation requires a greater – not lesser – emphasis on solvency oversight, disclosure and consumer information, and market monitoring. An insurance market structured around these principles will be one in which regulation is adequate, impartial, and minimally intrusive and, importantly, in which the regulatory process is transparent. The Geneva Papers on Risk and Insurance (2000) 25, 482–504. doi:10.1111/1468-0440.00078
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