New criteria expected to single out insurance companies on their economic importance
The International Association of Insurance Supervisors (IAIS), an organization that represents the world’s insurance regulators, has introduced new criteria for identifying insurance companies that can be considered “too big to fail.” This term became popular during the economic crisis in the U.S., where companies like the American International Group (AIG) were thrust into limelight for the part they played in the disaster. Companies that are considered too big to fail are considered vital to the economic stability of a country or, in some cases, the rest of the world. Because of the relationship between the world of economics and insurance, insurers are often considered too big to fail.
Insurers to be judged on a number of factors
The IAIS has collected data from 48 of the world’s leading insurance organizations and used this information to formulate a new methodology to determine a company’s importance to the economy at large. According to the new criteria, companies are to be judged on matters ranging from size and sector, to global activity and non-insurance actions. The organization is proposing that companies that fall below a certain standard that would be established by the new criteria should be subjected to stricter supervision.
Companies invited to submit comment regarding new criteria
Insurance companies that are interested in commenting on the IAIS methodology are being welcomed to do so. The comments provided by the industry at large will be used to refine the association’s criteria to better suit the global economic climate. Companies of varying sizes are welcome to weigh in on the issue.
Too big to fail status could promote government support during crisis
The IAIS is working with the Financial Stability Board, an international organization working to maintain economic stasis, to draft a preliminary list of companies that will be considered too big to fail according to the new criteria. If the association’s methodology is accepted and put into practice, governments will likely take a more aggressive role in ensuring the financial stability of insurers deemed by the IAIS as being important to the economy.