A report to the Federal Insurance Office

Perhaps the most important report that the FIO will ever make is the report on the system of state-based insurance regulation. By the end of January 2012, the FIO Director is to submit a report to Congress recommending changes to modernize and improve insurance regulation in the United States. This essentially means the FIO is being asked to propose its own mission and scope of operations and to lay out a road map to guide public policy decision-making moving forward in a major part of the financial services sector. Our focus here is on that report, but the discussion will also be useful in preparing other reports to the Congress mandated by DFA. This paper provides analysis and recommendations of NFI on the issues that the Congress has mandated for discussion in the FIO report to Congress early next year.Dodd-Frank Act; Federal Insurance Office; insurance regulation

Two-stage DEA method in identifying the exogenous factors of insurers’ risk and investment management efficiency

The objective of this study was to identify the exogenous variables of risk and investment management efficiency by using a two-stage data envelopment analysis (DEA) method. The first stage involves obtaining the efficiency scores of risk and investment management via DEA that requires only the traditional inputs and outputs. In the second stage, the Tobit regression analysis is conducted in which the efficiency score obtained from the first stage is treated as a dependent variable, while the exogenous factors are considered to be independent variables. The exogenous factors consist of operating systems, organizational form, consumer preference and size. The results showed that the mutual company as well as the takaful system demonstrate better risk management performance than their stock and conventional system counterparts. In addition, size is also a significant indicator for risk management efficiency in which the larger insurer/takaful operator exhibits better risk management performance than the smaller one. However, consumer preference is found to be insignificantly correlated with the efficiency of risk management. In contrast, with risk management, organizational form, operating system and size are not indicators of the investment management efficiency, but consumer preference is significantly and positively associated with investment management efficiency

EFFICIENCY OF INSURANCE COMPANIES IN CROATIA

Insurance companies have an important role in the stability and growth of the financial market and the economy as a whole. Therefore, it is crucial that insurance companies operate efficiently. Due to financial consolidation that overtook the Croatian financial market, the number of insurance companies dicreased from 24 in 2015, at the start of the observed period, to 15 in 2020. Following the financial consolidation, a number of large insurance companies that dominate the Croatian insurance market was set up. The main goal of this paper is to estimate and compare the efficiency of Croatian insurance companies using traditional financial indicators and nonparametric DEA methodology in the period from 2015 until 2020. Furthermore, the paper aims to determine whether large insurers are more efficient than the medium and small insurers. The results indicate that large insurers in general achieve above-average the ROI, ROE, and ROA values and below-average the claims, expense, and debt ratios. They achieve above-average or full efficiency according to the DEA methodology. In addition, some small insurance companies tend to be efficient, while for medium insurance companies the results are more complicated. Finally, the average efficiency of insurance companies improved in the observed period, while the gap between large, medium and small insurers keeps widening

Symbiotic Reform to Regulate the Insurance Industry: Regulators, Market Access, and Antitrust Issues in the U.S. and Korea

This dissertation deals with different issues together: regulators, market access, and antitrust in the insurance industry in the U.S. and Korea. The insurance market is regulated by the state alone and more than 51 requirements exist to establish an insurance company in the U.S. The insurance industry is also statutorily exempted from federal antitrust laws in certain conditions under the McCarran-Ferguson Act, which is facing proposals to reveal or revise it from Congress. The appropriate licensing policy is important because it can contribute highly to social welfare and protect the market failure. The proper application of antitrust law with a reasonable insurance immunity is also crucial to pursuing market efficiency and maximizing consumer welfare. I believe the McCarran-Ferguson Act partially serves those goals although it requires some revision like enacting another Statute such as the Optional Federal Charter Act. I suggest creating a symbiotic regulatory scheme by establishing a new federal authority, creating an optional federal chartering system, and allowing antitrust regulation to maintain at the state level. To promote modernization and globalization as well as to prevent systemic risk and inefficiency, federal regulation of the insurance industry is essential. The optional federal charter for insurers can help efficient and unified market access, which also can limit the scope of the McCarran-Ferguson Act\u27s exemption only for state-chartered insurers. The Korean regulatory regime requires not only structural reform, but also enhanced symbiotic cooperation between the existing regulators: the FSC, FSS, KFTC and other regulatory authorities. The principle of checks and balances must be secured to promote regulatory competition and protect against regulatory failure. It must come along with clarifying the function and procedure by clarifying and observing the related Acts and MOUs. The anticompetitive policy to control the number of insurance companies by restricting the issuance of new licenses must be abandoned because it is not an effective policy for either insurance companies or consumers in Korea. The Korean competition policy, as applied to the insurance industry is necessary to provide clear legislative revision, judiciary arrangement, and executive cooperation, especially for resolving which administrative guidance is legitimate action