Europe Sees U.S. Market Flaws

By E.E. Mazier

NU Online News Service, May 2, 10:41 a.m. EST, New York?By any world view, the United States insurance industry is not operating fully in a free and open market, a London insurer told an industry group here yesterday.

Robert V. Mendelsohn, group chief executive and director for Royal & Sun Alliance Insurance Group Plc, made the remark yesterday after accepting the International Insurance Council's International Insurance Award.

He told the audience that one surprise he has received as an American in Europe is that in the international supervision arena, many of his colleagues consider the United States as a "developing country."

"They don't think we have free and open markets in international services," Mr. Mendelsohn said.

Instead, European supervisors see state regulation as a fundamental barrier to trade, a theory that is gaining credence in the European community, he said.

In fact, the U.S. 50-state system of state regulation, particularly the advance rate and form approval system, "is fundamentally inconsistent with what the world thinks a regulatory scheme should look like," Mr. Mendelsohn said.

He urged that both the country and the insurance industry in particular must address this issue in the drive to open borders to reach "wider and deeper markets."

He also predicted greater movement toward global regulatory standards. As an example, he pointed out that the concept of risk-based capital--the evaluation of risk in the insurance business--like the banking business, is gaining global credibility.

Mr. Mendelsohn also predicted that the emerging markets of China, India and many Latin American countries will be the "engines of future growth," offering U.S. insurers a "great opportunity" to grow their businesses.

Turning to the subject of the lessons from the Sept. 11 terrorist attacks, Mr. Mendelsohn said that what is now clear is that there are some events in the world that the insurance business is not designed to handle.

While insurance is good for natural catastrophes, man-made catastrophes, such as the toppling of the Twin Towers in New York, is not what the insurance business is equipped to handle, he said.

"We need terrorism coverage, we need some insurer of last resort to provide the financial backing to make sure the system will work when the next 9/11 happens," Mr. Mendelsohn declared.

However, while there are several federal terrorism backstop bills in Congress right now, Mr. Mendelsohn cautioned that none of them should be embraced without vigorous analysis.

"We have to look at the real world impact of the legislation," he said, such as by asking that if "9/11 happened tomorrow," what would be the impact on insurers' financial statements if a particular bill passed.

Mr. Mendelsohn suggested that there would be little impact if any if the bills currently moving through Congress became law. "Our loss today wouldn't be all that different from our loss then," Mr. Mendelsohn stated.

He then repeated the oft-heard refrain that insurance companies "cannot take another 9/11" because such an occurrence would "put them over the edge."

Mr. Mendelsohn also added that the terrorism exclusions proposed by Insurance Services Office in all 50 states is important regardless of whether there is a federal backstop in place. This is because a federal bill does not take away the need of most insurance companies around the country to have protection, he said.

International Insurance Council is based in Washington, D.C.

Special Reports /

Europe Sees U.S. Market Flaws

Related Stories

Recommended For You