Regulatory risk on the rise: IBC CEO

The events of 2013 have demonstrated the insurance industry in Canada is facing a significant tide of risks, including regulatory risks, Don Forgeron, president and CEO of the Insurance Bureau of Canada, noted at IBC’s 2013 Regulatory Affairs Symposium in Toronto October 31.

“Clearly, we are at a historic moment in the tone and scope of regulatory activity around the world after the great recession of 2008,” Forgeron told attendees.

Citing the Insurance Banana Skins report for 2013, produced by the Centre for the Study of Financial Innovation and PwC, Forgeron noted that natural catastrophes have been identified as the top risk for property and casualty insurers globally.

However, the report lists regulatory risk as the number two global risk in 2013. “Let’s pause to consider that for a moment… second only to natural catastrophes,” Forgeron said.

“Insurers are now operating in an environment characterized by a rising tide of regulatory and legislative issues and initiatives,” he pointed out. This long list includes ongoing auto insurance reforms, GST review, excess taxation of reinsurance transactions, Canadian capital framework changes, new accounting standards for insurance contracts, the International Association of Insurance Supervisors’ proposed new international capital standard and the risk of uncertainty itself.

“Regulators are always focusing on risks: insurance risk, market risk, credit risk, to name a few,” Forgeron said. “Well, now regulatory risk has joined those clear and certain risks, at least from the perspective of insurers,” he told attendees.

“The pendulum of regulation must not swing too far,” Forgeron cautioned. If that happens, “it endangers healthy and robust insurance markets, and, therefore, availability and affordability of products,” he said.

Another major risk has been political, Forgeron said. Citing Ontario auto, “political gamesmanship posed a serious threat this spring when the Ontario government announced plans, pushed by the opposition, to target a 15% rate reduction for auto insurance,” he told attendees. “At the time, without a clear commitment to cutting the costs of delivering Ontario’s troubled auto product, this had the potential to do serious damage,” he said.