Chicago — The National Association of Mutual Insurance Companies (NAMIC) is cautioning Congress to avoid disturbing the financial markets and regulatory systems that have “served consumers well.”
Today, the organization sent members of Congress and state insurance policymakers a report, written by Nat Shapo, former Illinois Director of Insurance, that analyzes the causes of the nation’s financial crisis and highlights structural and behavioral differences between the property/casualty insurance industry and other types of financial institutions.
The report, “Financial Oversight Failure Highlights Effectiveness of Insurance Regulation,” notes that credit default swaps, which most experts believe played a major role in fomenting the crisis, have been mischaracterized as “insurance” by many. This has led some to conclude that insurance companies are inadequately regulated. The report explains that, in fact, credit default swaps are not an insurance product, and have nothing to do with the business of insurance. The report also finds no evidence that property/casualty insurers contributed to the financial crisis, and concludes that P&C insurers and their policyholders have benefited from a combination of prudent management and a robust system of state-based solvency regulation.
NAMIC President and CEO Chuck Chamness acknowledges that while the insurance financial regulatory system is not perfect, it has provided a source of comparative stability during the financial crisis.
“NAMIC member companies—with their established record of conservative management and prudent decision-making—know that the state-based system of insurance company solvency regulation has proven to be effective and reliable even as the ongoing financial crisis has exposed weaknesses in the regulatory regimes that govern other financial institutions. As a result, insurance companies today are able to provide their policyholders with needed protection even in a time of terrible strain,” Chamness said in a statement.
The report suggests that creating a federal Office of Insurance Information (OII) to bolster the federal government’s institutional knowledge of insurance markets would be appropriate.
“An OII could help federal policymakers monitor systemic risk throughout the financial services industry by providing a central repository to gather and analyze information already collected by state insurance regulators, such as insurer investment activity, capital adequacy and loss exposure,” the report states.
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