Regulatory styles #1

Blog - Regulatory styles #1

Robert Aurbach | Published: April 07, 2015

The scenario is familiar. The regulator is dictating procedures, limitations or reporting requirements that are stifling innovation and your effectiveness. Worse, your industry is being blamed for lacklustre results, in an environment where good outcomes are next to impossible to achieve.

Alternatively, the regulator is treading water in an environment that demands action if fair access and opportunity are to be achieved.

You can try to live with it, and play along with a system that seems completely uninformed about the needs and demands of your role, or you can try to influence the regulator to make the system work better for you.

Understanding what motivates the regulator's style of interaction with the environment, and the strengths and weaknesses of that style, can help you work better with your regulator.

There are three styles of regulation (although most regulators seem uninformed of their choices in this regard). I call them "prescriptive", "laissez-faire" and "collaborative”.  I've worked with all three of these systems, and hope to communicate their strengths and weaknesses, along with tips for surviving and thriving in each of these environments.

In the process, we will all hopefully move towards circumstances that serve all of our needs better.

"Prescriptive" regulatory style

The "prescriptive" style is based upon distrust. The assumption made by the regulator is that most stakeholders and service providers are trying to maximise their economic outcomes in the system, and that none of them are above bending or breaking the intent of the law to get the most that they can.

As a result, in prescriptive systems the object of the regulator is to control every aspect of the system to the extent that they are able.

Victoria was probably the poster child for this style of regulation until recent leadership changes seem to have set a new course. Within the last year they have had regulations in place that governed rehabilitation providers that exceeded 180 pages. In the past, providers have expressed the opinion that the level of regulation left them no freedom to adapt their services to the individual, and that "one size fits almost no one".

Prescriptive systems are best understood by realising that, while the regulator may have a lot of power in their own system, they are generally fairly vulnerable in the wider political arena.

A prescriptive system seeks to avoid controversy and the attention of the Minister, and the response to most problems is the commitment of more resources to control it.

A prescriptive system can often achieve short term gains with respect to premium costs and the ability to maximise the predictability of the system and the apparent control of behaviour.

The trouble is that the regulated will always try to devise a way around the regulations to do what they think is more appropriate or profitable. This creates a further prescriptive response by the regulator and starts another cycle of manoeuvring, with each side trying to get the upper hand.

In this “Us vs. Them” environment, the complexity and restrictiveness of regulations quickly grows to the point where the freedom to manage the injury to the needs of the individual is sacrificed in order to maintain low systemic costs.

Moreover, the cost of compliance with regulations begins to grow, and premium control comes at the cost of individualised injury management practices.

As I have suggested in these blogs previously, inevitably this leads to unnecessary disability caused by the compensation system itself.

Prescriptive systems work when they are able to recognise and quickly react to changes in the market responses to prior regulatory initiatives.

They tend to be data dependent and constant vigilance is required for their maintenance. A prescriptive system has the luxury of maintaining a "big picture" of the intent of the compensation system. They often support research to increase their ability to predict how to control the system to best effect.

The best approach for working effectively with prescriptive systems is to become perceived as an ally. 

If the regulator assumes that everyone is advancing only their own aims, then seeking to advance the aims of the regulator will create the opportunity to be heard in a different way. This cannot be faked. The ally must truly understand and embrace the goals of the system (usually premium reduction/control) and genuinely seek to advance that goal while finding a means to make it easier for the stakeholders and service providers to live with.

Nor can the alteration of the regulator's plan unreasonably favour one party over the others.  The regulator seeks to avoid the attention of journalists and the Minister, and use of regulatory power in a biased way will create complaints and media attention.

Nonetheless, real advances can be made by introducing the possibility that a regulatory objective can be achieved using alternative means that are less intrusive or use innovative approaches that the regulator may not have considered.

Development of credibility by the ally is the hardest part of advancing this approach.

It is imperative the benefits and risks of alternative approaches are presented to the regulator in a balanced way. It may be appropriate to propose a trial and evaluation of the proposed change via a "pilot project" proceed prior to a potential system-wide   roll-out, to gain the regulator's confidence that working toward the same goals is really feasible.

Next: The Laissez-Faire Regulator