SESSION 07. Regulation and the Impact of Regulatory Dynamics on Insurance Markets

7. Regulation and the Impact of Regulatory Dynamics on Insurance Markets.

Monica Keneley (Deakin University)
Grietjie Verhoef (University of Johannesburg)


The regulatory environment in which insurance markets operate has been a focus of historical inquiry in many countries. Regulation in various forms has had an impact on the structure, conduct and performance of insurers across the spectrum. At times these effects may have been positive, encouraging the expansion of the industry. At other times they may had had negative impacts inhibiting the growth of a well-functioning market. The rationale for the introduction of regulatory requirements has varied. Arguments FOR have emphasized potential market power, consumer protection, quality standards, market stability and the promotion of broader economic objectives. Arguments AGAINST have referred to the efficacy of free market outcomes and the promotion of competition. Not all forms of regulation have been mandated or imposed by government. Self-regulation, has been a feature of major insurance markets. This has manifested in collusive agreements such as those policed by the U.K. Fire Office Committee in the nineteenth and twentieth centuries. More indirect forms of regulatory behaviour have been an outcome of the growth of mutual insurers with a vested interest in protecting the interest of policyholders. In the last quarter of the twentieth century, financial sector deregulation has been a mantra adopted by many governments and this has had direct and indirect impacts on insurance markets. The rise and fall of bancassurance is a case in point. The turbulence after the Global Financial Crisis introduced another regulatory dimension affecting the insurance industry world-wide. This session aims to investigate the many and varied connections between regulation and risk. It will also consider the broader implications regulatory issues for insurance markets.

Key questions that could be addressed are: What impact has growing insurance market regulation had on risk? Has risk been mitigated by increased State regulation? To what extent has the insurance industry contributed to higher regulatory prevalence? What are the sources of increased regulation, in which areas of risk has regulation escalated and why? What has been the impact of private as opposed to public regulation? What do we know about the types of regulation: prudential, competitive, consumer protection and their impact? What of influence of regulatory externalities (the effects of regulation on other financial sector institutions) and their implications for the development of insurance markets? What do we know about the regulatory cycles and their implications? How has financial sector deregulation changed the market environment and impacted on risk? This session would also welcome other investigation which highlights the impact of regulation on the nature of risk and broader implications which enhance our understanding of the history and development of insurance markets.


Paper 1

Swedish Insurance, Legislation and Efficiency.

Peter Hedberg (Uppsala University)
Lars Karlsson (Uppsala University)
Mikael Lönnborg (Södertörn Universit)

According to previous research the insurance market accounted for a key role of the welfare policies in post war, corporatist Sweden. It became norm that insurance should be distributed similar to public utilities. However, since the industry was considered too decentralised and too market oriented to meet the requirements of serving the public, new regulations were introduced. Shortly, the industry developed oligopolistic features, which commonly are associated with inefficiency problems. Was regulation successful in light of its purpose? By quantifying asset flows, we examine the impact of regulation on market structure, market efficiency, and market profitability of the Swedish insurance industry.


Paper 2

The Welfare Philosophy of Life Insurance. The Imprint of Social Principles on the Insurance Business in Sweden 1850–1950.

Alf Sjöblom (Stockholm University)

This paper will highlight societal ideas developed by insurers around the turn of the 20th century and the impact these ideas had on the regulation of life insurance in Sweden. Ideas as a source for development are analysed from three perspectives: First, how an ideology of welfare became essential in promoting life insurance as a kind of ‘social movement’ infusing marketing measures with a ‘social purpose’. Second, how the ‘social purpose’ in turn was used to legitimize a self-regulation that solidified a uniform market as well as to influence legislation on insurance in general. Third, how concepts that evolved in the industry became essential for sustaining a market for life insurance in a society increasingly marked by social insurance and social democratic politics.


Paper 3

Insurance, professional organization and regulation modes in France and Spain from the end of the nineteenth century until today.

Leonardo Caruana de las Cagigas (University of Granada)
André Straus (CNRS Paris)

France and Spain have a long history of comparable economic and social development. At one point in the 19th century these countries diverge, but in another they converge in the second half of the 20th century. The evolution of the insurance sectors in France and Spain have certain similarities common to all Western countries. France has influenced the economic and financial development of Spain at some decisive moments of the nineteenth and twentieth centuries. However, Spain has often been taken as a model in the legislative field with periods of very strong government intervention. Parallelism and divergences show the influential impacts on the development of insurance markets. They also highlight the modalities of adaptation of professional structures and administrative behaviours between the two countries at different stages of their development.


Paper 4

Insurance and the market: Regulation in the insurance industry since the 1980s.

Grietjie Verhoef (University of Johannesburg)

Since the financial deregulation of the 1980s, other crises in the accounting and financial services environments (Enron, Worldcom, Parmalat, the Global Financial Crisis – GFC) facilitated growing regulatory state intervention in financial markets. The financial services industry is one sector that faced growing regulation. Globally regulatory intervention followed the US example (Harrington, 2009). An international wave of demutualisation programmes left the industry with a range of different organisational forms (Pearson & Yoneyama, 2015). This functional diversification contributed to increased risk, especially following the credit crisis (Geneva Papers, 2011). Specific deficiencies in risk management and supervision gave rise to regulatory overreaction and diminishing public choice. Specific country contexts have also contributed to growing regulation, leaving the market increasingly constrained. This paper considers the case of South Africa. Regulators leveraged chaos created by the global financial crisis of 2008 to implement unnecessary and costly insurance regulatory reforms.


Paper 5

Supervision and regulation follow industrial organization: A historical evidence in Japanese insurance.

Takau Yoneyama (Professor Tokyo Keizai University, and Professor Emeritus Hitotsubasi University)

Contrary to European countries, ’modern insurance’ was an ‘imported good’ in the Meiji Japan. Just after the end of the long national isolation policy, the Meiji government introduced Western business and technology as well as the Western institutions and constitution. Monetary and banking systems organized rapidly, but insurance lagged behind, partly because insurance was a new product for contemporary Japanese.

Japan traditional insurance like assessment insurance was available but was not sold on a commercial basis. Many entrepreneurs however, promoted insurance based on personal lines, but most projects were not successful. Nevertheless, the personal insurance market especially life insurance was steadily growing in the Meiji period.
In the 1890s, a series of issues occurred at once. In the marine business, some insurance companies suffered large losses. Many small and weak insurance companies also went bankrupt in the life and fire business. It was thought that these problems were induced by undeveloped insurance system. As a result, the Insurance Business Act was enacted in 1900, and substantial insurance supervision was put in place. The authorities responsible were the Chamber of Commerce and Industry Bureau of the Ministry of Agriculture and Commerce. Nominating supervisory duties to the Ministry of Commerce meant that supervision was not under monetary administration but commerce and industry administration. In contrast to Ministry of Finance, the Ministry of Commerce placed greater emphasis on managerial decision-making. This meant that competition in the insurance market was stronger than banking.