WASHINGTON–A Treasury Department official said the agency is taking an increased interest in insurance matters, but has yet to determine what steps should be taken to bring regulation of the U.S. market more in line with the rest of the world.

The comments came from David G. Nason, Treasury deputy assistant secretary of financial institutions policy, speaking at a legal seminar in Baltimore, Md., held by the National Organization of Life and Health Insurance Guaranty Associations.

“Treasury is spending more time studying insurance regulation and the insurance marketplace than it has in the past,” he said.

“Some of this is required–Congress gave us the responsibility to implement and manage the Terrorism Risk Insurance Program–and some of it is simply because we at Treasury recognize that insurance plays a critical and growing role in our financial marketplace,” added Mr. Nason.

He explained that Treasury is still looking at how the varying regulatory reform proposals would affect the U.S. insurance market and its relationships with foreign-based carriers.

Mr. Nason noted that, like much of the industry and regulatory community, the Treasury does realize some action needs to be taken.

“The regulatory system for the insurance industry should be consistent with the efficient and cost-effective provision of its services, and there appears to be virtually no disagreement that the current insurance regulatory system needs to be modernized,” he said.

“While Treasury has not made a decision as to which approach would be most appropriate, everyone seems to agree that a thorough review is in order. We are in the process of that evaluation now.”

Mr. Nason said there are two main areas the Treasury is focusing on. First, he noted the potential economic inefficiencies in U.S. insurance regulation, resulting from either the varying state regulatory regimes or the substances of their regulations, such as price controls.

Secondly, he said, the Treasury is examining the international aspects of the issue, seeking to ease operations for international firms operating in the U.S. and for U.S. firms operating elsewhere around the globe.

“At the most fundamental level,” he said, “the question posed in each of these areas is whether our current state-based system of insurance regulation is up to the task of meeting the challenges of today's evolving and increasingly global insurance market.”

In terms of regulatory inefficiencies, Mr. Nason pointed to the potential negative consequences of price controls, which he explained can reduce competition and availability as insurers decide they cannot price their coverage adequately, ultimately leading to an overreliance on state-run insurers of last resort.

On the international level, Mr. Nason said that foreign companies face significant hurdles in trying to cooperate with over 50 different regulatory regimes, and that the issue has been raised in trade talks.

Mr. Nason also noted the efforts of the National Association of Insurance Commissioners to resolve problems with the insurance regulatory system on an ongoing basis.

“We must acknowledge some of the good work the NAIC is doing to attempt to address these issues,” he said.

“The NAIC engages in regulatory cooperation with international insurance regulators and through memoranda of understanding, and supports individual members by providing technical assistance to regulatory agencies.

“The NAIC also coordinates closely with the Office of the U.S. Trade Representative in international financial services negotiations, and it participates in Treasury's financial markets regulatory dialogues with various countries, including China, Japan and the EU,” he said.

While Treasury has not made a decision to endorse either the optional federal charter approach or the federal guidelines for states approach, outlined in the State Modernization and Regulatory Transparency Act bill in the House, Mr. Nason said the department does recognize that changes need to be made to the regulatory system.

“It is clear to us, and we think it is to most observers, that our current system of insurance regulation requires modernization to meet our current challenges,” he said. “The existing system of regulation has the potential to lead to inefficient economic outcomes. That raises the cost and reduces the supply of insurance products to consumers. It may deter international participation in our domestic markets and creates obstacles to our own insurance firms' international expansion.”

Special Reports /

Treasury Increases Insurance Regulation Focus

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