Given the enormity of the financial crisis, a predisposition toward bold legislative action among lawmakers seems natural. Yet, a measured, surgical response that takes into account the peculiarities of insurance while recognizing its central place in the financial services industry may be the correct one.
Patricia Guinn, managing director, risk & financial services, at New York-based Towers Perrin, favors such an approach. Indeed, Guinn recently testified to this effect at hearings held by the House Committee on Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises titled “How Should the Federal Government Oversee Insurance?”
Citing the industry’s strong risk management culture and the historical success of state regulators, Guinn stressed that any new federal regulatory effort needs to be carefully structured and designed to supplement and improve the existing regulatory framework, not replace it.
After the hearing, Guinn elucidated this viewpoint in an exclusive interview with Insurance Networking News. “There are reasons that Federal attention is warranted, but it should be balanced by the realization that there is no need to start from scratch,” she said. “Any new role for the federal government in insurance regulation should build on the industry’s positive risk management characteristics and the good elements of the current regulatory structure.”
To quell systemic risk, Guinn said she favors a holistic regulatory framework that includes insurers along side commercial banks, investment banks and hedge funds, citing the United Kingdom, Australia and Canada as models for comprehensive financial services regulation. However, she stressed that federal oversight of the insurance industry needs to recognize its unique characteristics. “A one-size-fits-all approach derived from the banking industry would likely not work well,” she said.
Moreover, any new legislation should seek to eliminate regulatory arbitrage, while acknowledging the complexity of the insurance landscape, especially at the holding company level. To accomplish this, she suggests adopting a principle-based approach that values transparency as much as rules.
Lastly, Guinn said that Federal regulators should strive for the lightest footprint possible and only intervene in the direst of circumstances. “State insurance regulation has served the industry, by and large, quite well. The best of it should be preserved.”
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