House lawmakers are divided about how to supervise the insurance industry as Congress reviews the Obama administration’s blueprint for a broad overhaul of the nation’s financial rule book.
Rep. Paul Kanjorski, D-Pa., chairman of a House Financial Services subcommittee, said Tuesday he was “confident” the administration’s broader proposal would include a new federal office of insurance information to collect data on the industry and advise the new systemic risk regulator on possible threats. Obama did include such an insurance proposal in his administration’s blueprint for regulatory reform.
The federal government also should get authority to regulate some specific insurance products — such as bond and mortgage insurance — that could pose risks to the financial system, Kanjorski said at a hearing.
But other members of the financial services panel, like Rep. Ed Royce, R-Calif., are pushing for establishment of a so-called optional federal charter for regulating the insurance industry, which has more than $6.3 trillion in assets under management and is supervised by state insurance commissioners.
Under the administration’s plan, all large financial institutions whose failure could undermine the stability of the financial system would be supervised by the Federal Reserve. That is expected to run into stiff opposition in Congress.
Insurance conglomerate American International Group Inc., which collapsed last fall and prompted the government to provide about $180 billion in aid, is held up by lawmakers as the poster child for inadequate insurance regulation.
“I believe that only ostriches can now deny the need for establishing a federal insurance resource center and a basic federal insurance regulatory structure,” Kanjorski said.
The administration proposed establishing the new federal insurance office but avoided taking a position on a federal charter.
Big insurers have been lobbying for Congress to free them from a web of state rules by establishing a federal regulator and letting the companies choose which rules to follow.
But that would ease regulation of insurance companies, weaken protections and raise costs, consumer advocates say. Industry estimates suggest the creation of the charter could be worth billions of dollars annually to insurers.
Proponents say the option of a federal overseer is needed to prevent another meltdown like AIG.
“We’ve got a patchwork quilt here of regulation” by the states, said Royce, the chief sponsor with Rep. Melissa Bean, D-Ill., of legislation that would set up an optional federal charter.
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