With the financial crisis as a backdrop, calls for a regulatory structure that addresses systemic risk are emanating for all parts of the political and business spectrum.
Yet, Illinois Insurance Director Michael McRaith says efforts to address systemic risk need not be conflated with efforts to establish an optional federal charter (OFC) for insurers.
“We agree that, as a key component of financial stability, insurance must be factored into an all-inclusive view of the financial system at the Federal level,” McRaith testifying on behalf of the National Association of Insurance Commissioners, told the U.S. Senate Committee on Banking, Housing and Urban Affairs. “This shared objective can, of course, be achieved without a Federal insurance regulator and without preempting state authority over the fundamental consumer protections, including solvency standards.
McRaith highlighted ongoing efforts of state regulators to strengthen and modernize insurance regulation. While charging that a federal regulator would lead to regulatory arbitrage and gaps in oversight, he did acknowledge the federal government’s need for relevant information and backed creating a Federal Office of Insurance Information within the treasury department.
“The current financial crisis illuminates the need for a collaborative approach to regulation of financial conglomerates and better cooperation among regulators,” McRaith said. “The state-based insurance regulatory system includes critical checks and balances, eliminating the perils of a single point of failure and opaque or omnipotent decision-making.”
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