The insurance business in particular and the financial services industry in general are becoming increasingly global in outlook and operations. Although a few U.S. insurers have been operating internationally for several years, they have been the exceptions rather than the rule. In contrast, European insurers have invested substantial sums in acquiring U.S. companies. More recently, however, major U.S. companies are beginning to move into Europe and the Pacific Basin. Money management is increasingly international and the underlying businesses which generate the investable funds—such as insurance—are under pressure to follow suit.

In recent years, European financial institutions have become relatively free to diversify, merge, create strategic alliances, and establish joint ventures. Through these and other means, large European companies are diversifying and growing through acquisitions to protect their national markets, achieve EC market share, and compete worldwide. The activity within the EC and by EC companies, with their increased competitive capabilities, illustrates the powerful acceleration toward global trade in financial services. The enhanced competitive capabilities of foreign insurers not only affects insurance markets abroad but also here in the United States. Recent years have witnessed a growing entry and presence of foreign insurers in our domestic markets, thereby intensifying the competitive pressures therein. Demands for more flexible regulation, to allow better competition both domestically and abroad, can be expected.

With the internationalization of the financial services industry come attendant pressures on the various systems of insurance regulation to adapt to the demands of a more competitive and flexible global economy. The need for regulatory reciprocity between nations and regional groups promises to significantly affect the manner of insurance regulation in the future. For example, as more European (and Asian, Mexican, and other) banks and insurers engage in business in the United States, pressure will intensify on regulators for reciprocity to (1) permit European companies to do in this country what they are permitted to do in Europe, and (2) level the playing field for U.S. banks and insurers to operate by the same rules that govern foreign financial institutions in Europe. In negotiating and concluding reciprocal agreements with other nations, the nature and/or the locus of regulation may be significantly affected. Even if such agreements only compel comparable treatment between domestic and foreign insurers, the increased internationalization of the marketplace will give rise to problems, circumstances, and pressures with which insurance regulation must deal and to which it must accommodate. Also, it can be anticipated that proponents of federal regulation of insurance in the United States will use the increased internationalization of insurance and financial services businesses as an additional argument to shift the regulatory locus in this country to a single regulator in Washington.

With the advent of the internationalization of the insurance business, it has been said that the traditional forms of insurance regulation have become obsolete and that global regulation is called for. Global regulation refers to the regulation of insurance and insurance-related activity throughout the world. Ultimately, it may assume any one of several forms. At one end of the spectrum would be a supranational regulatory body with the ultimate decision-making authority to which any local, regional, or national regulatory body would be subject. However, existing political units are unlikely to cede substantial regulatory power to a broader unit. (The debate between federal and state regulation in the United States and the slowness of members of the EC to implement various insurance directives illustrate this reluctance.)

But global regulation need not demand a single international authority. A much more likely scenario, especially for the foreseeable future, is the prospect of several independent regulators operating under a system of meaningful reciprocity.

Perhaps lending further credence to the belief the future of insurance regulation more likely will be evolutionary rather than revolutionary are some comments made several years ago regarding the direction in which insurance regulation was heading.

Nevertheless, predicting the future course of political, legislative, and regulatory events is hazardous at best, especially in the context of a complex business, such as insurance which cuts across virtually all aspects of our economic and social well-being. The dramatically increased involvement of the federal government, the convergence of financial services, and the demands of a global market promise to substantially affect the nature and locus of insurance regulation in the years ahead.