Federal oversight of the insurance industry appears to be more likely as President Barack Obama and members of Congress roll out plans to address the country’s economic woes in what experts say is the largest regulatory overhaul since the Great Depression.
House Financial Services Chair Barney Frank (D-Mass) said this week that his top priority is creating a systemic-risk regulator to oversee the activities of any financial firm – including banks, insurance companies and hedge funds – that poses a danger to the financial system. The Financial Services Roundtable (FSR) also unveiled its regulatory blueprint for financial firms that includes a federal regulator for property-casualty and life insurance firms. The FSR’s plan will be shared with lawmakers and the Obama administration.
Under the FSR’s plan, this new regulator’s position would combine the duties of the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Financial Industry Regulatory Authority. The plan would also give the U.S. Federal Reserve the authority to override other regulatory agencies if necessary to stabilize the entire financial system.
The FSR’s plan would also allow the U.S. Federal Deposit Insurance Corp. (FDIC) to insure national insurance firm, FSR Vice President for Insurance Peter Freeman said, noting that the proposal would also provide insurers with the option of becoming federally regulated.
Last week, six members of the House of Representatives sent a letter to newly sworn-in Treasury Secretary Timothy Geithner urging him to increase federal oversight of the insurance industry by creating an office within the Treasury or by installing someone “to fill a void on insurance oversight and expertise at the federal level.”
The insurance industry has been divided over the issue of federal oversight. After the letter was sent, the American Insurance Association’s (AIA) incoming president, Leigh Ann Pusey, commended the letter’s writers.
“It’s critical for Treasury and other public policy leaders to develop and institutionalize an insurance expertise at the federal level,” Pusey said. “Congress will soon debate the scope of federal regulation and whether to apply that oversight to insurers. That debate is certain to focus on the need to monitor systemic risk on a national basis. An OII would be a tremendously valuable tool for helping to inform that debate.”
However, members of the National Association of Professional Insurance Agents (PIA), the National Conference of Insurance Legislators (NCOIL) and others have come out against federal legislation, pointing to the downfall of federally regulated banks last fall as reason to leave the regulation of insurers up to states.
The six letter writers, however, believe the fall of another giant in 2008, insurer AIG, illustrates the need for federal oversight.
“We all share the belief that we must take steps to ensure that a similar situation does not occur in the future and we believe that an important first step ought to be the establishment of an office within Treasury which would have a knowledge base and understanding of insurance operations,” the letter stated.
