Insurance News

Obama Financial Services Reform Praised By Rival Insurance Groups

Posted on: June 23, 2009

WASHINGTON—Supporters and opponents of a new federal regulatory regime for the insurance sector all found something to like in the Obama administration’s white paper on financial services regulatory reform.

Among those reacting with positive comments were insurance trade groups that support retention of the current state-based regulatory system for insurance, the Independent Insurance Agents and Brokers of America, the Property Casualty Insurers Association of America (PCI) and the National Association of Mutual Insurance Companies.

Also reacting were groups that support creation of an optional federal insurance charter for companies including the American Insurance Association, the Council of Insurance Agents and Brokers and the Financial Services Roundtable. The proposal is an important first step in a stronger federal role in regulating insurance, they said.

The “white paper,” unveiled by President Barack Obama in an appearance in the East Room of the White House, would add several federal components to the current, state-based insurance regulation system.

Specifically, these include an agency within the Treasury Department called the Office of National Insurance which would advise the Treasury Department on various issues, including international trade and industry solvency and market conduct issues. The ONI would also recommend which insurance companies represent a systemic risk to the system and should be overseen by the Federal Reserve Board, in addition to state regulators.

The paper also said the administration would support “increased national uniformity through either a federal charter or effective action by the states.”

Robert Rusbuldt, IIABA president and CEO, said the IIABA “strongly supports” President Barack Obama’s decision not to propose a complete overhaul of insurance regulation. “We are pleased that the Obama administration’s proposal retains the current state regulatory system and does not directly call for the creation of a federal regulator,” he said.

Charles Symington, IIABA senior vice president for government affairs, said “We are optimistic that the President’s plan will not be used as a precursor to federal regulation and that this proposed ONI will be designed to work with the existing state system to protect consumers and the marketplace and ensure international coordination.”

Leigh Ann Pusey, president of the American Insurance Association, which supports federal regulation, said the white paper “recognizes that the property-casualty insurance industry remains significantly hampered by an outdated and fragmented state-based regulatory system that is inherently limited and cannot effectively meet today’s global economic challenges.”

Her view is that the white paper “supports efforts to modernize and improve the state based insurance regulatory framework, specifically referencing the federal charter as an alternative.”

Further, Ms. Pusey said, “It addresses the need for a strong national policy voice on insurance matters by establishing an Office of National Insurance – a critical step.

David A. Sampson, PCI president and CEO said his group supports targeted reforms and agrees with the need to create a federal systemic risk overseer to help ward off future crises in the financial services sector.”

He added, “Property/casualty insurers, who have remained well-capitalized and solvent throughout the current fiscal crunch, do not present a systemic risk and did not cause the existing crisis.” The plan, he said would not “add a duplicative layer of federal regulation” to a “successful state system.”

Charles Chamness, president and CEO of NAMIC, said that “the paper implicitly recognizes that property/casualty insurance companies – particularly mutual insurers whose sole focus is the policyholder – have performed exceptionally well throughout this crisis and do not pose a risk to the financial system.”

At the same time, he said, “the paper recognizes that a financial holding company such as AIG, which contained well-regulated insurance subsidiaries as well asa poorly regulated non-insurance subsidiary that engaged in risky non-insurance activities, should be considered systemically important and thus subject to oversight by the Federal Reserve.”

The proposed ONI has a structure with limited authority which “closely parallels the Office of Insurance Information that has been proposed in legislation currently pending in the House of Representatives and which NAMIC has endorsed,” he said.

The Financial Services Roundtable, which represents large financial institutions, including multinational insurers, said the proposal represents a strong recognition of the need to modernize insurance regulation.

“The Roundtable applauds the initial legislative proposal of an Office of National Insurance, but believes we must go farther,” it said.

“The ideals of consolidated supervision, consistent consumer protection, uniform regulatory treatment, among others, necessitate the enactment of a comprehensive, uniform federal charter,” Steve Bartlett, FSR president, said.

“State regulation has simply failed to keep pace with what, today, is a national and international business,” he added.

Ken A. Crerar, president of The Council of Insurance Agents & Brokers, added that its members appreciate the Administration’s interest in working toward a modernized insurance regulatory system.

“We support the proposed establishment of the Office of National Insurance within the Treasury Department, and hope this will serve as the first step toward establishing an optional federal charter, which the Administration identifies as one method of reaching the objectives in its proposal,” Mr. Crerar said.

Frank Nutter, president of the Reinsurance Association of America, said his trade group was “encouraged” that the “white paper” indicated the administration is “open to a Federal role in the regulation of insurance.”

Mr. Nutter added that last year’s financial crisis “clearly demonstrated the need for international coordination and communication across all financial services industries.”

He said that, “Because of the increasingly global nature of the reinsurance business, it is essential that we have resident expertise about the industry at the federal level, and further, the authority to effectively negotiate international agreements.”

He noted that the U.S. is the only country in the International Association of Insurance

Supervisors (IAIS) not represented by a federal insurance regulatory body, and our industry is sorely disadvantaged by this in an increasingly global marketplace.”

© Copyright 2009 National Underwriter Property & Casualty. A Summit Business Media publication. All Rights Reserved.

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