Principles to Live By

November 16, 2007

On November 5th the New York Superintendent of Insurance, Eric Dinallo, issued a press release and a draft regulation that Mr. Dinallo states “would make the New York Insurance Department the first in the nation to establish principles-based regulation.” The press release states that the aim of principles-based regulation is to “reduce unnecessary regulatory and administrative burdens . . .”, and sets forth the principles for both the regulated and the regulators (the proposed regulation just sets forth the principles for the regulated — I guess they figure a regulator cannot issue a regulation regulating itself). To see copies of the press release and proposed regulation go to and look under the heading “New Item”.

In essence, the proposal sets for rules to live by, both for the regulated companies and for the regulators. The rules themselves are mostly common sense rules that, it could be argued, are what is supposed to be the case in any event – such as Principle #1 for the companies: “A licensee shall lawfully conduct its business with integrity, due skill, and diligence.” Commentators have already taken shots at the principles, basically arguing that they could even lead to more regulation or litigation as regulators start to “define” the elements of the principles more narrowly than under current rules. One only need look at the body of law and disagreement over that simple document of principles called the U.S. Constitution to understand the possibilities.

On the other hand, any attempt to reduce or simplify the regulatory process should be welcomed by the industry, and it should diligently pursue this initiative with the Superintendent to try and make it work. For the most part those of us that have dealt with regulators for decades are understandably skeptical, particularly when it comes to regulatory initiatives. However, I believe the Superintendent should be given a chance to put some meaningful substance to the bones of the principles.

There is one principle that should be added to the Regulators list. The Regulators should be required to acknowledge that licensees are for-profit entities and that their owners are entitles to a fair return on their investment. Mr. Dinallo has frequently stated in public forums that he is anxious to bring new investment into the industry. A starting point for investors would be to know that if they do so successfully, they can and will be rewarded. If the regulators cannot make this principle commitment, why should investors make a principal commitment?

What do you think?

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