Earlier this month, New York Superintendent of Insurance Eric Dinallo unveiled a draft regulation that would establish a system of principles-based regulation in New York State. If implemented, the regulation would make New York the first jurisdiction employing principles-based regulation in the United States. “The essential goal of regulation is not rote compliance with a long list of rules, but ensuring appropriate outcomes. As a code of conduct, the principles are reasonable rules that can be easily incorporated into the business philosophy and operations of regulated parties with little or no expense. In fact, most regulated entities should already be operating in accordance with such principles,” Dinallo said. The proposal is the product of the New York State Commission to Modernize the Regulation of Financial Services, established by Governor Eliot Spitzer in May, and previously discussed here.

Scott Rothstein, the Commission’s executive director, said in a statement that “the principles do not pre-empt existing law or regulation” but “they make clear the fundamental purposes behind those laws and regulations and can serve as scaffolding around the existing regulatory structure, providing support and guidance as products, practices and markets evolve.”

Some of the notable proposed principles for insurers include stipulations that insurers will conduct their business with integrity, due skill, diligence, with adequate risk management systems and adequate financial resources. Insurers are also required to treat their clients fairly. Under the proposal, regulators must strive for efficiency and effectiveness, while remaining independent and objective. All regulatory activity must be proportionate to the issue being addressed and should not require unnecessary or needlessly duplicative information from the regulated entity. A copy of the draft regulation containing a complete list of the proposed principles for licensees and regulators can be found here.