A bill to federalize the regulation of insurance may be introduced in the U.S. House of Representatives as early as next week. In a conference call, Reps. Ed Royce (R - Calif.) and Melissa Bean (D - Ill.), sponsors of the National Insurance Consumer Protection and Regulatory Modernization Act, said the bill would create a national insurance regulator who will work with a pan-industry systemic risk regulator to better protect the financial system.
Royce noted the legislation would empower a federal regulator with the ability to monitor insurers at the holding company level. He said the travails of American International Group underscored the need for a regulator with a wider purview than a state regulator has. While the insurance operations under state regulation remained viable, Royce noted, obscure investments and over use of leverage elsewhere within the company put the business at risk.
“The current regulatory model missed that systemic threat,” he said. “Because state [regulators] are solely focused on their individual jurisdiction, we’ve got a problem. A regulator able to focus on the bigger picture, the systemic threats, is what is necessary.”
Accordingly, the new bill will stipulate that the proposed Office of National Insurance has the authority to access the financial records of all the affiliates within the holding company structure. The bill will also require federally registered insurance holding companies that have a predominate share of insurance business, as determined by the commissioner, to be regulated at the holding company level.
Bean said that in addition to addressing consumers concern about safety and soundness of their insurance companies, the legislation would give the industry a federal voice. “In times of national crisis there needs to be a federal perspective in tax policy and the negotiation of trade agreements,” she said. “It’s also important we help the industry better serve consumers with a more streamlined regulatory process that enhances competitiveness.”
Royce amplified this sentiment, stating the regulatory redundancies and inefficiencies has cost insurers and, in turn, consumers. “We have had 140 years of state insurance regulators failing to come to an agreement to adopt uniform standards,” he said. “The lack of state cooperation over the years is really at the heart of the need to establish a federal insurance regulator.”
While efforts to federalize insurance regulation have gone down to defeat in previous legislative sessions, Bean sees the notion gathering steam, citing a recent report from the “Group of 30,” former Treasury Secretary Paulson’s blueprint for reform and comments made yesterday by current Treasury Secretary Timothy Geithner, as evidence of a widening consensus. “There seems to be recognition as we move ahead on broader regulatory reform that we do include the insurance industry,” she said.
Insurance industry proponents of a federal charter for insurers are also taking notice.
"We view the news of Reps. Bean and Royce undertaking a new bill aimed at enhancing consumer protections and modernizing the way insurance is regulated as a very positive development,” says Blain Rethmeier, SVP, Public Affairs for the American Insurance Association. “Especially when their efforts are coupled with Secretary Geithner’s comments yesterday that insurance is a critical part of the broad regulatory reforms needed and that a federal functional regulator for insurance has merit."
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