With regulatory standards being set at an international level more commonly these days, insurance sector associations from around the world have teamed up to form an organization that will represent the insurance sector on a global scale.

The Global Federation of Insurance Associations (GFIA), which was launched in early October, consists of 31 insurance associations representing 87% of the world’s insurance business. Members of the GFIA represent all types of insurance companies, including life and health insurers, property and casualty insurers, and reinsurers.

The GFIA’s member associations decided to form a global body in response to the push for common regulatory standards for insurers around the world, says Frank Swedlove, president of the Canadian Life and Health Insurance Association Inc., who has been elected inaugural chairman of the GFIA.

“Since the financial crisis, there’s been a much greater focus on the establishment of international standards,” Swedlove says. “There are several international organizations that are establishing standards that will be applicable to insurance companies around the world.”

Indeed, although oversight typically is conducted by regulators within a specific jurisdiction, the standards for oversight are increasingly being set at the international level.

The International Association of Insurance Supervisors (IAIS), in particular, has been working actively toward increasing the level of international regulatory convergence. Last year, the IAIS released a new set of core principles that are designed to serve as a benchmark for insurance regulators in all jurisdictions. The IAIS is also working to develop the Common Framework for the Supervision of Internationally Active Insurance Groups, known as ComFrame, which aims to ensure that the increasingly global activities of large insurance groups are supervised appropriately.

Insurers also are being affected by global regulatory developments in the broader financial services landscape, such as the systemic risk debate, market conduct and trade issues, and anti-money-laundering efforts.

Says Swedlove: “There are a lot of organizations getting involved these days in international standard-setting.”

Canadian regulators are acting quickly to ensure they’re compliant with the international standards, says Julien Reid, chairman of Toronto-based Canadian Council of Insurance Regulators‘ IAIS insurance core principles implementation committee in Quebec City. Since the new IAIS core principles were released last year, Reid has been working with the committee to ensure Canadian regulators are taking the appropriate steps to become compliant.

“These are the best practices for insurance supervision and oversight,” Reid says. “We want to be compliant.”

International regulatory standards have become necessary due to the increasing globalization of the insurance sector, Reid says. He notes that there are a growing number of large insurance companies that are active in multiple jurisdictions around the world.

“You see insurance groups that are larger and larger now,” he says. “It’s a question of trying to avoid regulatory arbitrage and to make sure that the insurance companies that do business within a jurisdiction or that do business internationally have the same level playing field.”

With more regulatory decisions being made at an international level, Swedlove says, it has become important for the insurance sector to have a voice at that level. Although many of the participating insurance associations in the GFIA previously had collaborated in an informal manner, he says, establishing the GFIA formalizes those efforts and strengthens their collective voice.

“In order to be effective in making representations to these international organizations,” Swedlove says, “the founding members felt that we needed to come together and establish a federation that could speak with one voice with respect to areas of common interest.”

Part of the GFIA’s goal is to educate policy-makers on the nuances of the insurance business. Swedlove says regulators that oversee the broader financial services industry have a tendency to group insurance companies together with banks and other types of businesses. This results in broad policies that fail to reflect the unique challenges facing insurers.

“The insurance business is very different from the banking business,” Swedlove says. “[The GFIA is focused on] explaining those differences and making sure that whatever policy is established is appropriate for the insurance business.”

For example, regulators have cast their net too wide in their efforts to identify and regulate “systemically important financial institutions,” Swedlove says. He argues that insurance companies should not be included in this category, as the traditional business of insurance does not involve systemic risk. “The insurance industry does not have the same kind of systemic risk that would apply in the banking sector.”

The GFIA, which held its inaugural meeting in Washington, D.C., in early October, plans to meet twice a year. In addition, 11 working groups have been established to develop position papers pertaining to specific issues the insurance sector is facing.

© 2012 Investment Executive. All rights reserved.