Have the free-wheeling, capitalism-at-all-cost titans of business who maintain the market will fix all ills had their day — at least for now? For the last 30 years deregulation has been all the rage — from the airline industry to the capital markets. But the fallout from the recent near collapse of worldwide economic systems — blamed in large part on the subprime mortgage crisis in the U.S. — is bringing about a hard look at the less-is-more attitude when it comes to governmental regulation.
As Lawrence A. Hunter, Ph.D, a senior fellow at the Institute for Policy Innovation, writes in the “Closing Quote” column on page 62 of this issue of Insurance Journal – South Central, “regulation [is] back in vogue.” And a recent story in the New York Times puts it bluntly: “There will be no putting off the action on re-regulating finance. Both of the presidential candidates and Congressional leaders like Christopher J. Dodd of Connecticut, the Senate banking committee chairman, and Barney Frank of Massachusetts, the House Financial Services Committee chairman, would go further than the Bush Treasury. They say they want to overhaul the current system next year to rid it of overlapping regulatory agencies, give other agencies new powers and perhaps create a new overseer for the whole system.” (“Both Sides of the Aisle See More Regulation”, by Jackie Calmes, Oct. 13, 2008.)
In the insurance industry, proponents on both sides of the federal versus state regulation argument see the current crisis — especially the government’s bailout of the financial arm of American International Group — as underscoring the merits of each system.
Four members of Congress who support a federal charter for insurers — U.S. Senators John Sununu (R-N.H.) and Tim Johnson (D-N.D.) and House members, Reps. Melissa Bean (D-Ill.) and Ed Royce (R-Calif.) — suggested in an opinion article published in the Wall Street Journal that AIG’s problems were the result of a failure of state regulation. “Letting this 19th-century regulatory model govern a 21st-century global marketplace poses obvious and increasing risks to the health of the insurance industry, American taxpayers and our capital markets. Congress needs to address this matter before the government is forced to bail out another failed insurance company,” the authors wrote in their op-ed.
In response, the National Association of Insurance Commissioners quickly pointed out that state regulation actually did an exemplary job in protecting AIG insurance companies and policyholders.
“The government didn’t bail out an insurance company,” said Roger Sevigny, New Hampshire’s insurance commissioner. “There weren’t any insurance company subsidiaries of AIG in trouble. The government bailed out AIG and its financial holdings.”
Backlash or not, we are living in interesting times. The argument continues. Stay tuned.
Topics Legislation AIG
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