Inconsistent regulations cost insurers $25bn
Thursday March 31 2011 | 07:53 AM

Fragmented and inconsistent regulation is costing the global insurance industry an unnecessary $25bn (€18bn) per year according to research by KPMG.

The accountancy firm says the lack of a Basel accord equivalent for the insurance industry has led to a raft of different initiatives in jurisdictions including Solvency II in Europe, the Solvency Modernisation Initiative in the US and enterprise risk management improvements in China.

KPMG insurance director Rob Curtis says: "The insurance industry has struggled to achieve the same level of global attention as the banking sector. Currently there is no 'Basel Accord equivalent' for insurers which means there are bespoke capital, investment and governance regulations which require different levels of financial reporting depending on each jurisdiction.

"As a result, a significant amount of money is being spent on possible duplication and there is no consistent measure of insurers' financial solvency."

But Curtis says the introduction of a new framework - the common framework for internationally active insurance groups or ComFrame - is a big opportunity for insurers to move towards global convergence.

"Through encouraging greater consistency and transparency in financial reporting, ComFrame should make insurance groups more attractive to capital providers", he says.

"It will significantly impact insurance groups and provide structuring possibilities - for example companies with an international strategic focus may look to consolidate further given ComFrame should provide common platforms for capital, risk, valuation and reporting.

"A consistent framework should reduce regulatory oversight and remove the current environment where regulatory arbitrage can exist."

"Through encouraging greater consistency and transparency in financial reporting, ComFrame should make insurance groups more attractive to capital providers", he says.

"It will significantly impact insurance groups and provide structuring possibilities - for example companies with an international strategic focus may look to consolidate further given ComFrame should provide common platforms for capital, risk, valuation and reporting.

"A consistent framework should reduce regulatory oversight and remove the current environment where regulatory arbitrage can exist."