WASHINGTON--Congress should concentrate on drafting legislation to reduce systemic risk to the financial system before tackling solvency and consumer protection in the insurance sector, the chief executive of the Property Casualty Insurers Association of America said.

David Sampson, president and chief executive officer of PCI, made the comments as the trade group unveiled a report it was sending to all members of the House Financial Services Committee illustrating the distinctions between solvency and systemic risk regulation.

Mr. Sampson said the debate on the future of financial services regulatory reform is "an issue of existential importance" that will have a deep impact on both consumers and the industry.

Solvency regulation focuses on individual financial services consumers within each market sector, while systemic risk regulation concentrates on limiting the spread of failure risks from one market to another and beyond to the global economy, the PCI paper said.

Another difference, noted PCI, is that solvency regulation is conducted by the primary functional regulator for each subsidiary, while systemic risk regulation is conducted by consolidated umbrella supervisors.

Mr. Sampson suggested that once Congress has addressed systemic risk and imposes regulation designed to prevent the current crisis from reoccurring, then a review of the larger financial system and regulatory structure can take place.

In that context, Congress could then address optional federal chartering (OFC), an Office of Insurance Information, modernization and reform of the non-admitted and reinsurance markets, and uniform producer licensing.

"It is imperative that the p-c industry have a strong voice during these important discussions on systemic risk and regulatory reform, he said, adding the association is ready to provide the necessary technical expertise.

Mr. Sampson and other PCI officials said they prepared the paper and are lobbying Congress intensively on the issue because they believe "it's the most critical issue facing our industry today" and engagement is necessary to "prevent unintended, negative consequences to our industry, which could negatively impact consumers."

Mr. Sampson also sought to differentiate the industry from banks, noting that the vast majority of insurance markets are operating normally and continue uninterrupted. He noted that policyholder surplus remain healthy and that A.M. Best has downgraded less than 4 percent of carriers.

Robert Gordon, senior vice president of policy development and research for PCI, said federal regulation of insurance would create a "massive new bureaucracy."

His assessment was contrary to the findings of a study commissioned by supporters of an OFC released earlier in the week by the Promontory Group. The study said a federal insurance office would likely employ 2,390 full-time staff and have an annual budget of $465 million. Currently, state regulation is estimated to cost a minimum of $1.1 billion a year.

This would make the insurance office a "relatively small agency" compared with other federal financial regulatory agencies, said the study, while there would also be benefits in savings for the largest insurers from economies of scale if they came under federal oversight, the report concluded.

Mr. Gordon criticized the report, saying federal oversight would replicate the same regulatory situation that caused the current banking collapse.

Special Reports /

PCI: Fix Systemic Regulation Before Insurance

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