Regulatory Roundabout: UK Insights from the Heart of U.S. State Insurance Law

At a Glance

• The insurance regulatory landscape in the U.S. is highly decentralized and is regulated at the state level; in the UK, all insurance carriers are regulated by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), with the PRA focusing on prudential risk and the FCA conduct risk.
• NAIC meetings bring together various stakeholders and state insurance regulators to focus on thoughtful deliberation and a respectful exchange of ideas. The UK insurance sector has no real equivalent.
• NAIC meetings seem to reflect a high-trust environment, where longstanding professional relationships and diverse experience foster open, respectful dialogue.

Our British insurance regulatory partner, Steven Francis, accompanied the U.S. insurance team to the NAIC national meeting in Minneapolis — his first (but far from last) visit to the NAIC’s key venue for advancing regulatory policy. Our international insurance practice lead, Sara Manske, asked him for his first impressions from attending working group and committee meetings, as well as meeting with stakeholders over the course of the conference. 

Q&A Session: NAIC National Meeting

Sara Manske: What differences between the UK and U.S. systems did you observe?

Steven Francis: As every UK insurance lawyer knows, in the U.S. regulation is at state level, meaning in theory that an insurance business might have 51 regulators. In the UK, we have two. I used to work for one of them, and many people believe that two is one too many. I couldn’t conceive of how the U.S. system might work, and how it could possibly be efficient. Many of the people with whom I spoke at the NAIC were strong advocates of state regulation, and their arguments were compelling. I can see how state regulation can result in more choice and better competition, and it of course respects the strong role that states have in the U.S. business psyche, which we underestimate in the UK. The position is much more nuanced than I’d originally thought. (Isn’t everything?)

SM: What about the actual committee meetings?

SF: The debates and discussion were a form of highly visible and interactive law-in-action that we don’t have in the UK. My initial reaction was strongly positive. It was only later in the week that regular participants told me that much of the real back-and-forth was done off-piste in private meetings and that, if I listened carefully, I would hear little actual disagreement at the public meetings. I understand the point made, but still I think it’s impressive that the NAIC and regulators open themselves up to questions and potentially criticism from a broad range of interested parties. UK regulators would do well to heed the point that stakeholders do not appreciate being a passive recipient of laws and standards.

SM: You mentioned the importance of private meetings (or the “hallways” as we sometimes say). Any observations on their role?

SF: It did occur to me that the NAIC meeting seemed to be as much a coming together of old acquaintances as a business meeting. Many attendees seemed to know many others.  Several had worked in a number of roles — private practice lawyer, regulator, insurer, standard setter. It struck me that this is a high-trust environment built on personal relationships. In such an environment it may be easier to open up and acknowledge the merits of opposing views, knowing that your acknowledgment won’t be abused.

I don’t think we’ll ever have anything like NAIC meetings in the UK — with only two regulators there’s no overwhelming need. But I certainly think that it provides a textbook example of how agendas can be advanced — I dare say even in an enjoyable and collaborative fashion.