On July 9, it became official: The FederalStability Oversight Council designated American International Group(AIG) as a systemically important financial institution (or SIFI),pursuant to the Dodd-Frank Wall Street Reform and ConsumerProtection Act. Two more firms—GE and Prudential Financial—werealso named as SIFIs. GE will accept the designation, whilePrudential has appealed and says it plans to fight the SIFItag.

Any company designated as systemically important could besubject to higher capital levels and regular stress tests to ensurethey can absorb losses, though the specific capital rules forinsurers remain far from complete.

While the decision is historic—no insurer has been federallyregulated for more than 150 years, according to recent testimony byan official of the Congressional Research Service—the news was asurprise to no one, least of all AIG CEO Robert H. Benmosche, whohas been saying since January that he welcomed the designation andunderstood that government oversight would be a faitaccompli for insurers going forward. In a July 2 statement,the insurer said it already had been working closely with theFederal Reserve Bank of New York “as our regulator.”

Another highly placed AIG executive (who has since departed)told me back in April 2012 at the annual RIMS conference thatembracing the SIFI classification and working with the Fed was aforegone conclusion—and that such a designation spoke volumes ofjust how sizable the insurance industry's role has become inhelping to sustain the greater economy.

Love or hate Benmosche (and I happen to be in the former camp),he's wholly right and responsible to embrace the idea of acceptingAIG's position as an important financial institution. One of thecore responsibilities of the insurance industry is to do right bythose who place their faith in it. In a very real way, acceptingthat insurers now play a greater role than ever in maintaining ournation's economic health is not only a smart choice in terms ofworking with the government, but also improves insurers' publicimage. One only need look at the potentially devastating impactthat AIG's implosion would have had on the economy at large—and theensuing multibillion-dollar bailout that followed (which AIG paidback ahead of schedule with interest, thank you very much)—torealize just how important insurers are not just to theircustomers, but to the country in which they are based.

While the phrase “government oversight” strikes fear into thehearts of most of us (and perhaps it still should), in this case,for an insurer to be characterized as a financial institution vitalto something much greater than itself is a new reality that cannotbe avoided—nor should it be. As AIG returns to a position of powerin the industry, it has indeed regained much of its former swagger.Only this time, it will do so as an even more “important” playerthan it was before.