Now that a key member of Congress has introduced a bill creating an interim Office of Insurance Information, does that make an optional federal charter inevitable? Not as long as the industry itself remains so bitterly divided over the issue.
It's hard enough to get anything passed in Congress when there is no serious difference of opinion. But when it comes to federal oversight of insurance, this industry is anything but united. The battle lines have already been drawn, and both sides are gearing up for a furious fight.
First of all, you have differences with the life insurance industry, which is far more supportive of an OFC than their property-casualty colleagues. The p-c side of the business is split, both within the company ranks (OFC-backer AIA against PCI and NAMIC) and the agent/broker constituency (OFC-backer CIAB versus IIABA and PIA).
If there is one thing the insurance industry does very well, it's lobby, and both sides of the OFC divide will no doubt throw everything they have for or against this latest piece of legislation, designed to get the ball rolling towards federal oversight.
Rep. Paul Kanjorski, D-Pa., chair of the Capital Markets Subcommittee of the House Financial Services Committee, decided to seize on the surprise regulatory reform initiative launched by the Bush administration by introducing H.R. 5840, the Insurance Information Act of 2008.
Rep. Kanjorski is holding out a carrot to producers, promising to streamline licensing procedures by finally creating a National Association of Registered Agents and Brokers–long the darling of CIAB, and more recently adopted as a policy goal by the rival IIABA.
But I doubt even NARAB would be a sweet enough gift to sell Big I on direct federal intervention. If NARAB is such a good idea, which I think it is, why not pass it on its own merits, instead of holding a good legislative solution hostage to a broader, less worthy bill? It sounds like the Gramm-Leach-Bliley debacle all over again, with NARAB dependent on much bigger legislation for no good reason.
The Kanjorski law sounds relatively tame. What could be the harm in setting up an advisor/facilitator within the Treasury Department as the insurance point person for the federal government, gently nudging the industry towards uniformity on items of international concern–such as collateral requirements for foreign reinsurers?
But it's a Trojan horse for sure, triggered to unleash direct regulation by Uncle Sam not too far down the road.
I am on record in this blog and my NU column as being quite skeptical of such a shift in authority. There no doubt would be efficiencies and cost savings in the short term, but long term, consumer protection is likely to suffer, and who knows what the feds would require once they got their hands on the industry?
I am also skeptical that Congress and the White House will agree on any radical overhaul of financial services regulation in an election year. Do you seriously think a Democratic Congress will hand the Republican White House any legislative victories as sweeping as Treasury's proposed overhaul would be? Also, how will Congress fund a new brand new federal bureaucracy with the budget already overflowing with red ink?
For sure, Congress will hold hearings galore, and perhaps the House will even vote on a bill. The one commodity there is never a shortage of in Washington is hot air. That's how so many trial balloons are launched, and why so many crash back to earth. Such will be the fate of Rep. Kanjorski's bill, I believe.
In the meantime, lawmakers should not just stand there, but do something productive!
Congress should pass the NARAB measure, as well as federal benchmarks for excess and surplus lines and reinsurance oversight that states would implement. Then they should get out of the way until the GAO delivers a progress report a few years down the road. If all else fails, then, and only then, should an OFC be seriously considered.
What do you folks think?
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