Management of Financial Stability in Insurance Firms: Legal Mechanisms, Prudential Supervision and Policyholder Protection

Abstract

Financial markets remain very crucial in the economic growth and well-being of the society. Risk management is also centralized in the insurance sector where in case of losses; the insurers provide financial covers. Regulatory measures and oversight should be kept to be in order to make sure that insurers remain not going under as well as that they keep their commitments and liabilities to policyholders and remain not going under in the economic crunch. It assesses the legal mechanisms and prudential laws that regulate insurance companies in a few countries, such as the United Kingdom, the United States, Germany and Japan. The data was collected by reviewing legal texts, case law and regulatory documents combined with interviewing of experts in the insurance industry who remain legal professionals and regulators. United Kingdom and Germany use moderate regulatory policies with moderate capital requirements and Japan has stricter regulations ensuring that the insurers remain stable. The United States has the least rigid system which may be at the price of long-term stability. United Kingdom and Germany were scoring the highest on prudential supervision and the United States and Japan have newer but less comprehensive frameworks. The paper discusses the need to enhance financial stability, enhance prudential supervision, and policyholder protection to establish robust insurance markets. The presented comparative insights will be helpful in the global discussion about best practices of insurance regulation and point to the areas of improvement and in particular in the new markets.