Earlier this week the New York Insurance Department (the “NY Department”) released a draft regulation (the “Draft Regulation”) setting forth 10 regulatory principles to be followed by the insurance industry. An accompanying press release (the “Press Release”) issued by the New York Superintendent of Insurance, Eric Dinallo, also includes 10 principles for regulators which the NY Department intends to issue as a Circular Letter. The Press Release states that “[p]rinciples-based regulation aims to reduce unnecessary regulatory and administrative burdens, ensure that regulation and its enforcement are proportionate, accountable, consistent, transparent and targeted, and provide benefits for consumers from more efficient markets, more effective protection, and better responsiveness to consumers’ needs.”
If the Draft Regulation could accomplish all of the goals described in the statement quoted above, principles-based regulation would be a welcome development for the insurance industry. However, the Draft Regulation raises several issues that should cause the industry to be concerned whether such goals may practically be reached in the current regulatory environment. Also, the Draft Regulation, and principles-based regulation in general, could do the industry more harm than good if it leads to the industry facing more litigation.
Background on Principles Based Regulation
What is principles-based regulation? Generally, principles-based regulation focuses on desired regulatory outcomes and separate, high level principles or concepts applicable to the regulators and the industry, with less emphasis on detailed rules. In contrast, insurance and other financial services regulation in the United States today is highly rule-based.