State Regulators, Consumers Hit Treasury Financial Plan

The National Association of Insurance Commissioners and a consumer group have assailed the Treasury Department's blueprint for overhauling financial services regulation as an attack on the consumer protection initiatives of state regulators.

But the reaction was different from the Risk and Insurance Management Society (RIMS), which gave the plan a glowing endorsement.

The blueprint proposes creation of an optional federal charter for insurance companies and agents--with separate charters required for property-casualty and life-disability.

The Treasury plans also include a proposal to create an interim federal insurance regulator within Treasury to coordinate with the state regulatory officials on "pressing" insurance regulatory issues, an acknowledgment that the OFC debate in Congress is likely to be "difficult and ongoing."

In a statement, Kansas Insurance Commissioner Sandy Praeger, president of the NAIC, said that while state regulators "certainly support better coordinating and modernizing of their oversight efforts, 'modern' does not mean 'federal.'"

She said the blueprint proposal would "marginalize" state insurance regulators "and, frankly, for our sector it looks more like a solution in search of a problem."

She added, "State regulators challenge the proponents of a federal solution to trace the origins of the current problems in the housing and bond insurance markets...and they will find that the true failures lie with a lack of coordinated federal oversight."

J. Robert Hunter, insurance director for the Consumer Federation of America and a former insurance commissioner, said that when he held the post of federal insurance administrator, which no longer exists, the White House had assigned him the task of, "in effect, being the OIO that Treasury now proposes."

"We were the national 'eyes and ears' on insurance and worked with other agencies on all sorts of major issues, including national health insurance (with the then Department of Health, Education and Welfare) and national no-fault auto insurance (with the Department of Transportation).

"The industry laments the lack of such a national insurance expert, but it was the industry that lobbied the Reagan administration to stop FIA [Federal Insurance Administrator] from performing the role and also ended the FTC [Federal Trade Commission] involvement in insurance analysis," Mr. Hunter said.

"Why do they want back what they once opposed?" he asked. "Simple. They seek to gut consumer protections. The Treasury proposals for an OFC/deregulation regime as part of a 'solution' to the ills caused in mortgage lending lack of oversight is laughable.

"More deregulation as a solution to too much deregulation is classic Bush administration logic akin to more tax cuts to solve the crisis in our national debt caused by excessive tax cutting," Mr. Hunter said.

RIMS said it "wholeheartedly endorses U.S. Treasury Secretary Henry Paulson's call for the establishment of an optional federal charter for insurance regulation as part of its recently released Blueprint For A Modernized Financial Regulatory Structure."

Terry Fleming, member of the RIMS board of directors and director of risk management for Montgomery County, Md., said in a statement that RIMS is "encouraged that the U.S. Treasury has proposed an optional federal charter for insurance."

He added that risk management and commercial insurance buyer communities have long supported the concept of an optional federal charter and "believe that a regulatory system structured in the method proposed will provide an effective and much more efficient process to manage insurance transactions for policyholder operations."