The long-running rift over federal involvement in insurance regulation was evident today at a hearing held by the House Financial Services Committee.
The committee called a roster of witnesses from the insurance industry to testify about H.R. 2609, the Federal Insurance Office Act of 2009. The act, sponsored by Rep. Paul Kanjorski (D Pa.), would create an insurance office within the Treasury Department.
“The credit meltdown highlighted the lack of expertise within the federal government regarding the insurance industry, especially during the collapse of American International Group and last year’s turmoil in the bond insurance markets,” Kanjorski said in his opening remarks. “My bill would rectify these shortcomings and promote stability in our insurance markets.”
While all witnesses endorsed the concept of a centralized repository of insurance regulatory expertise, opinions differed markedly on what the exact purview of a Federal Insurance Office (FIO) should be. This tension is reflected in the several name changes the bill, and the office it will create, have undergone recently. Previous incarnations of the bill proposed creating an Office of Insurance Information (OII) or an Office of National Insurance (ONI).
Testifying on behalf of the Property Casualty Insurers Association of America, Janice Abraham, president and CEO of Chevy Chase, Md.-based United Educators Insurance, said the scope of the proposed FIO has expanded too much since the bill’s inception.
“The intent of the initial proposals was to coordinate federal and international insurance policy,” Abraham said. “However the recent drafts create a potential for regulatory mission creep over time. The Committee should take care to ensure that the FIO’s mission and powers are limited to addressing gaps in federal and international policymaking coordination.”
Indeed, many opponents of an optional federal charter for insurers have expressed concern that legislation mandating creation of federal insurance regulator was a stalking horse for establishment of an OFC.
Spencer Houldin, president of Washington Depot Conn.-based Ericson Insurance, voiced such a concern when speaking on behalf of the Independent Insurance Agents & Brokers of America (IIABA).
“Although IIABA strongly supports state insurance regulation and would oppose any effort to undermine that system, we recognize the benefits that can be achieved by establishing a non-regulatory body at the federal level that is able to review industry data, advise federal officials on critical insurance issues, and coordinate efforts on international insurance matters,” said Houldin. “It is imperative, however, that any statute authorizing the establishment of an insurance information office be designed carefully and with the proper safeguards and not ‘set the stage’ for federal insurance regulation. Therefore, any overt or subtle efforts to make the insurance office look more like a regulatory body or to set it up to become a forerunner to federal regulation would force us to vigorously oppose any such proposal.”
Proponents of a federal presence countered the FIO is a minimal step and necessary to update the insurance regulatory system. “Establishing such an office—properly empowered—represents a necessary first step in ensuring that the essential role of insurance is recognized at the national level, and that the federal governments retains the ability to preserve a viable insurance market and maintain competitiveness in a changing global economy,” J. Stephen Zielezienski, SVP & General Counsel, American Insurance Association, testified.
Dennis Herchel, AVP and Counsel for Boston-based Massachusetts Mutual Life Insurance Co., suggested even broader powers be entrusted to the FIO, given the widespread fervor on the part of regulators to squelch systemic risk.
“Given the breadth of the Administration’s proposed response to the financial crisis and the applicability of that response to insurers, we believe it is imperative that the status and role of the FIO within the federal systemic risk regime be strengthened beyond what has been proposed,” said Herchel, there on behalf of the American Council of Life Insurers. “We believe the FIO should be elevated in status so that it can participate actively and effectively with federal financial industry regulators, including a systemic risk regulator, under any new systemic risk regulatory paradigm that may be implemented.”
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