Regulation and intervention in the insurance industry – fundamental issues

Financial markets belong to the strongly supervised and regulated sectors of most modern economies. This applies to both banking and insurance. Traditional motives and justifications for regulation in these two industries overlap to some extent, but differ also in many ways.

Financial markets have undergone extraordinary growth and structural change in recent decades, due to a variety of developments (worldwide integration of capital markets, revolution in information technology, shifting attitudes towards competition and protection in the financial services area). Along
with this, existing approaches to regulation have been increasingly questioned and regulatory frameworks modified in a multitude of ways, a process very much still going on.

While a very substantial body of literature concerned with the regulation of banking has developed over recent years, dealing with both its fundamental motivation and specific forms and applications of such regulation, a similar intellectual effort concerned with insurance regulation is lacking to a considerable extent. It is the aim of this paper to work towards closing this gap.