The property and casualty industry in general supports creating a federal insurance office, according to testimony last week before Congress. But the devil is in the details, with the sector split over how much power and responsibility to give such a body.
Trade groups representing large insurers as well as reinsurers voiced support for a strong agency with broad powers under H.R. 2609–the Federal Insurance Office Act. But smaller insurers, independent agents and state insurance regulators asked that the scope of the agency be restricted.
Therese Vaughn, chief executive officer of the National Association of Insurance Commissioners, said her members would support creation of the FIO, as long as it had a limited role involving international agreements and systemic risk, and left solvency issues to the states.
“We fully support the goal of creating a national insurance office as a resource for the federal government and a conduit for the states, but we will strongly oppose any efforts to use such an office as a precursor to establishing a federal insurance regulator,” Ms. Vaughn said in testimony before the House Financial Services Committee on capital markets regulatory reform.
She added that NAIC support for the new office is “predicated on the notion that the office be a tool to connect the state regulatory system with the federal regulatory system, and not be an instrument to diminish state insurance regulation.”
She also noted that earlier versions of legislation creating a federal insurance office “made clear that the office would not create a supervisory role over insurance at the federal level, and we urge inclusion of identical language into any final legislation.”
The bill was introduced by Rep. Paul Kanjorski, D-Pa., chair of the Capital Markets Subcommittee of the House Financial Services Committee.
In his opening statement, he said the bill would “provide national policymakers with access to the information and resources needed to respond to crises, mitigate systemic risks and help ensure a well-functioning financial system.”
He added that the credit meltdown highlighted the lack of expertise within the federal government regarding the insurance industry, especially during the collapse of American International Group and last year’s turmoil in bond insurance markets.
“My bill would rectify these shortcomings and promote stability in our insurance markets,” he added.
Rep. Kanjorski said that even those who oppose a federal insurance regulator would have to acknowledge the federal government needs some methodology to deal with systemic risk, calling the AIG developments “almost a complete disaster.”
Even though AIG’s property and casualty insurance companies (since rebranded as Chartis) were not involved, he said, reckless credit default swaps by parent company AIG’s Financial Products unit nearly prompted “the largest insurance financial disaster in the history of our country. We can’t afford to let that happen in the future.”
Stef Zielezienski, senior vice president and general counsel of the American Insurance Association–a supporter of federal regulation–said that “while the discussion draft does not create a national functional insurance regulator, the FIO, if structured correctly, would represent a substantial contribution toward broadening and deepening our nation’s understanding of the critical role of insurance in our national system.”
David Atkinson, executive vice president of the Reinsurance Group of America, representing the Reinsurance Association of America, said reinsurers “strongly support” the legislation, stating that the bill “lays the foundation to ensure that the federal government” has the authority to gather information so it has a more thorough understanding of the complexities of insurance and reinsurance issues and how policy decisions may affect these markets.
He added that the draft legislation also gives the federal government the authority to coordinate federal efforts and establish national policy on global insurance matters, as well as the right to enter into international insurance agreements and the authority to preempt state insurance measures inconsistent with such cross-border deals.
However, reflecting the views of smaller insurers, Janice Abraham, president and CEO of United Educators Insurance, testifying on behalf of the Property Casualty Insurers Association of America, said that “while we have not taken a position on proposals to create an office of insurance information, our members have concerns and questions about a greatly expanded federal insurance oversight office.”
“We’re not broke, we didn’t cause the financial crisis, and we don’t need a new federal oversight that may ultimately increase costs for consumers,” she added.
The National Association of Mutual Insurance Companies said its membership “continues to have serious concerns” about the bill.
“Any measure that could be used to set different standards for different companies runs the risk of distorting the market and ultimately harming consumers,” said Jimi Grande, senior vice president of federal affairs for NAMIC. “NAMIC believes that an Office of Insurance Information as proposed by the original bill would provide the federal government with the information it needs without affecting the market or establishing a de-facto federal insurance regulator.”
Spencer Houldin, president of Ericson Insurance, a Connecticut-based agency, who testified on behalf of the Independent Insurance Agents and Brokers of America, said, “IIABA strongly supports state insurance regulation and would oppose any efforts to undermine that system.”
However, he added, “we recognize the benefits that can be achieved by establishing a non-regulatory body at the federal level that is able to review industry data, advise federal officials on critical insurance issues and coordinate efforts on international insurance matters.”
He called it “imperative, however, that any statute authorizing the establishment of an insurance information office be designed carefully and with proper safeguards, and not set the stage for federal insurance regulation.”