The nation’s insurance industry found some things to like and not to like in Treasury Secretary Timothy Geithner’s proposed restructuring of financial services regulation.
While Secretary Geithner said that any federal regulatory authority should not replace state regulation of insurance, he left open the door to discussion of an optional federal charter.
Large property/casualty and life insurers that support some type of optional federal regulation of insurance found Geithner’s plan lacking in that it did not explicitly spell out a federal role in insurance regulation.
More main street insurers welcomed Geithner’s apparent support for continued state regulation of insurance, as did state insurance commissioners.
Insurers also have other concerns with the Geithner blueprint beyond the federal versus state regulation issue.
Leigh Ann Pusey, president of the American Insurance Association, was forceful in claiming that state regulation is inadequate and in stressing her group’s belief in the need for a federal charter option for insurers in any regulatory overhaul.
“While we believe property/casualty companies do not pose the same types of systemic risk challenges to our economy as other financial services sectors, given the national and global nature of the risk assumed by the property/casualty industry and its importance to a well-functioning economy, the industry needs to have a seat at the federal regulatory table alongside the other federal financial regulators,” she said.
She maintained that the current crisis has “exposed that the state-based insurance regulatory structure is fragmented and not well-equipped” to handle current challenges.
“Each state only has jurisdiction over those companies operating within their individual borders. Those states are inherently and constitutionally limited from dealing with the national insurance regulators in other countries to resolve international insurance matters,” Pusey said. “Further, many insurers do business in multiple states as well as globally. They must have a modernized, national regulatory system that allows them to keep pace with the competition. Continuing to regulate insurance companies only at the state level is not a sustainable approach.”
The $5 trillion life insurance industry, which also supports federal regulation, took some consolation in Geithner’s comments that a federal charter might make sense for some insurers.
Without a federal insurance regulatory office, “any effort to oversee systemic risk would necessarily fall short,” said Frank Keating, president and CEO of the American Council of Life Insurers (ACLI.
“The federal government must develop the expertise and the structure to monitor the life insurance marketplace and understand how life insurers interact with other financial institutions and American consumers, as well as negotiate international insurance regulatory agreements,” Keating said.
Insurers belonging to the Property Casualty Insurers Association of America (PCI) underscored the need for any actions to provide a level playing field for all companies and not undermine healthy competition.
PCI said it is concerned about one part of the proposal that would enable the Federal Deposit Insurance Corp. (FDIC) to tap capital from insurers in holding companies and potentially use those monies to prevent insolvencies in other industries.
“Draining capital intended to protect policyholders could potentially undermine an industry that is largely solvent in order to prop up other industries with solvency problems. We are very concerned about the potential for harm to consumers and the marketplace,” said David A. Sampson, PCI’s president and CEO.
PCI said it is also concerned that the Treasury approach may sweep too broadly. The group said that most traditional insurance activities pose little or no systemic risk and, specifically, very few lines of property casualty insurance, and few property casualty insurers, pose any significant systemic risk at all. Thus, PCI said, it prefers an approach that “recognizes this fact, rather than a one-size-fits-all reliance upon the organizational structure of an insurer.”
Jimi Grande, vice president for federal and political affairs of the National Association of Mutual Insurance Companies (NAMIC), which represents many state and regional property/casualty insurers, said the administration’s proposal raises many questions in terms of the regulation of the property/casualty insurance industry.
“We agree with the secretary’s comments that thousands of smaller companies were not part of the problem but are part of the solution. The thousands of property/casualty insurance companies on main streets throughout America are highly competitive, well capitalized, and continuing to fulfill promises to their policyholders. They are fundamental to the nation’s economy and its ability to recover from the current crisis,” Grande said.
But his member companies are concerned that the secretary and some members of Congress may use the current crisis as an opportunity to establish federal regulatory authority over insurance activities.
“Property/casualty insurance regulation should remain at the state level since efforts to establish an optional federal charter or federal oversight of property/casualty insurance would lead to inefficient, costly, and confusing dual regulation,” he said.
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