Although one prominent Washington official warned last week that federal regulation of insurance is unlikely next year, and that optional federal charters may be off the table, industry leaders gathered here said the mood in Congress–given the country's financial troubles–indicates some form of national oversight has become a matter of "when," rather than "if."
Unaware of the discouraging background briefing given by the chair of the Federal Deposit Insurance Corp., Sheila Bair, to directors of the American Insurance Association on Nov. 14 (reported by National Underwriter on page 6 of this edition), those speaking at the 20th Annual Executive Conference for the Property-Casualty Industry–produced by The National Underwriter Company, and sponsored by Ernst & Young and Dewey & LeBoeuf–said they expect Uncle Sam to step in and oversee insurance at some point.
Stanley A. Galanski, president and chief executive officer at The Navigators Group, said the pace towards federal regulation is fast, comparing the current environment in Congress to the mood just before Sarbanes-Oxley requirements on financial reporting was passed in response to Enron's collapse.
Future federal regulation may not even be "optional," according to George Fay, executive vice president of worldwide property-casualty for CNA. He said he believes there will be federal regulation of insurance that all companies will have to comply with to some degree–possibly in addition to state regulations.
Mr. Fay suggested larger companies will likely be able to adapt to this environment more easily than smaller carriers.
John Q. Doyle, president and CEO of AIG Commercial Insurance, wondered what a federal regulatory system would look like–noting that, around the world, regulators are primarily interested in solvency, whereas in the United States there is more concern over consumer issues.
Pierre L. Ozendo, a member of the executive board, chairman and CEO of Swiss Re America Corp., said the United States should look to an OFC to effectively prepare for coordination with regulatory systems around the world that will become more global. He said an OFC would allow the United States to have a regulator able to hold discussions on a level playing field with counterparts in Europe and elsewhere.
While it is uncertain whether federal regulation would ultimately be more effective than state oversight, given the problems that have occurred in the federally-regulated banking and securities sectors during the current financial troubles, Mr. Ozendo maintained that federal officials are the only ones with the "sheer power" to get a financial services system that is "stuck" moving again.
Mr. Galanski furthered Mr. Ozendo's point regarding global cooperation, stating he believes the debate in Washington has moved from state-versus-federal regulation, to national-versus-international cooperation.
Mr. Fay said he is not a fan of more federal government involvement in insurance, wondering whether Washington might cause more problems for insurers than it solves. In any case, he said he would like to see some time pass before major changes to the financial services regulatory landscape are made to identify the source of the problems that must be addressed.
Donald J. Bailey, chairman and CEO of the Willis HRH brokerage, said he backs an optional federal charter, citing the burden placed by the current system on the Willis acquisition of HRH. He said among the regulatory approvals needed was one state in which a small entity related to the deal was domiciled. Weeks of red tape followed, said Mr. Bailey, who had to be fingerprinted and fill out a 15-page application.
After a few weeks, the regulator informed him there were omissions on the application–one of which was that he wrote "J" instead of his full middle name. He called such time-consuming and costly delays "a little silly."
Mr. Bailey also said he believes a federal regulator would have helped the insurance industry manage the current troubled environment better.
"If you look at the current crisis that we have going on … there is no doubt in my mind that having a federal regulator would do two things–not only help us manage our way through this probably a little more effectively, but far more important than that, actually help keep these things from happening," he said.
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