The Convergence of Insurance with Banking and Securities Industries, and the Limits of Regulatory Arbitrage in Finance

56 Pages Posted: 19 Jul 2014 Last revised: 19 Jun 2016

See all articles by Matthew C. Turk

Matthew C. Turk

Indiana University - Kelley School of Business

Date Written: July 17, 2014


This article examines the regulatory challenges raised by recent, overlooked changes in insurance markets that have led to a functional convergence between insurance and the broader financial sector.

The law literature on financial regulation last addressed the issue of convergence over a decade ago, before the latest generation of market innovation and at a time when concern over systemic stability was not at the forefront. This article revisits the convergence phenomenon in the context of insurance, and does so by applying an analytical framework that distinguishes between two “boundary problems” that accompany all financial regulation. One problem concerns jurisdictional boundaries: to what degree does market integration require that diverse regulations be harmonized across jurisdictions? The other relates to definitional boundaries: within a given jurisdiction, how should distinctions be drawn among financial products and firms that have come to perform similar economic functions?

Two conclusions follow from applying this framework that are in tension with the current thrust of policy as well as the literature. First, the Federal Insurance Office established by Dodd-Frank is inappropriately structured to leverage international harmonization agreements into domestic reforms, whereas the reverse orientation would be more effective. Second, frequent calls for more “functional regulation” fail to appreciate the subtle advantages of retaining formalistic legal definitions, even in the face of increasing economic convergence.

At bottom, both boundary problems are a product of the possibility for regulatory arbitrage across jurisdictions or industry definitions, and the potential for a loosely regulated shadow finance sector to arise. Here, insurance is used as a case study to demonstrate that regulatory arbitrage can occur along a surprising number of fronts and is difficult to reliably estimate ex ante when formulating financial regulation. For this reason, the Article argues, scholarship that has proposed a requirement for financial regulators to perform a quantitative cost-benefit analysis as part of their rulemaking overestimates the benefits that such a procedure would provide in practice.

Keywords: Banking, Finance, Insurance Law, Securities Law, Regulation

JEL Classification: G20, G21, G22, G28, K20, K22, K23

Suggested Citation

Turk, Matthew C., The Convergence of Insurance with Banking and Securities Industries, and the Limits of Regulatory Arbitrage in Finance (July 17, 2014). 2015:3 Columbia Business Law Review 967 (2015), Available at SSRN: or

Matthew C. Turk (Contact Author)

Indiana University - Kelley School of Business ( email )

1309 E. 10th Street
Rm. HH4080
Bloomington, IA 47405
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics