Plans To Push New Treasury Boss To Create Information Office

WASHINGTON--Two members of the House Financial Services Committee will ask the Obama administration's new Treasury secretary to unilaterally create an Office of Insurance Information within that agency, it was learned.

The request is contained in a letter obtained by National Underwriter, which was drafted by Reps. Melissa Bean, D-Ill., and Ed Royce, R-Calif., in anticipation that the Senate will confirm Secretary-designate Timothy Geithner.

Their message, still to be formally sent, would ask that move as one of Mr. Geithner's first steps on taking office.

According to officials and industry lobbyists close to the letter's authors, who declined to be identified, the request by the two lawmakers is of particular import.

They said it indicates a key strategy change by segments of the insurance industry that are pushing for a greater federal role in overseeing regulation of insurers and agents.

Supporters of federal regulation, the sources said, will now seek creation of an OII within Treasury, either unilaterally or through legislation, while creation of a federal charter for insurers would be considered as part of overall regulatory restructuring expected to be considered by Congress either later this year or early next year.

Reps. Bean and Royce were the primary sponsors of legislation introduced in the last Congress that would create an optional federal charter for insurers.

The draft letter said creating an OII in the lawmakers' view would be an important first step to provide an operation with a knowledge base and understanding of insurance operations to prevent a reoccurrence of the American International Group financial disaster.

Such a unit, they suggested, could have headed off the problems at bond insurers "that resulted in a tightened credit market for insurers and significant losses by banks and other financial institutions."

The letter was drafted last week in anticipation that Mr. Geithner would now be in office, but his confirmation hearing before the Senate Finance Committee was delayed until today by Republicans so they could circulate to all members information regarding Mr. Geithner's failure to pay taxes on income earned while he worked for the International Monetary Fund in 2001 and 2002.

Mr. Geithner, who later paid those taxes, apologized for what he called an oversight during today's hearing. He is expected to be confirmed shortly by the Senate, especially since committee member Sen. Judd Gregg, R-N.H., is expected to support his nomination.

At his confirmation hearing, Mr. Geithner called the tax transgressions "careless mistakes" and unavoidable ones. He told the Senate Finance Committee the failure to pay was "unintentional." But he also said, "I should have been more careful."

Sen. Max Baucus, D-Mont., chairman of the panel, said he hopes to have a committee vote on the nomination tomorrow.

Officials at the Financial Services Roundtable said the representatives' letter is a "key first step" in getting the ball rolling toward a stronger federal presence in insurance regulation.

But, said Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable, while an OII within Treasury is a "good first step," a federal charter for insurance must follow.

He said creation of an OFC is likely to be discussed by Congress this year as part of legislation restructuring the current financial services regulatory system, not as a separate bill.

Leigh Ann Pusey, incoming president of the American Insurance Association, agreed with the FSR comments.

"These issues (OFC and OII) are not mutually exclusive," she said. "It's critical for Treasury and other public policy leaders to develop and institutionalize an insurance expertise at the federal level," Ms. Pusey said.

"Congress will soon debate the scope of federal regulation and whether to apply that oversight to insurers," she added.

That debate is certain to focus on the need to monitor systemic risk on a national basis, Ms. Pusey noted, and "an OII would be a tremendously valuable tool for helping inform that debate."

Mr. Talbott said lawyers at his trade group believe the Treasury Department has independent authority to establish an OII. But, it would have to be limited in size and could not preempt state regulation.

It would not have the preemption authority proposed in federal legislation introduced last year by Rep. Paul Kanjorski, D-Pa., chairman of the Capital Markets Subcommittee, that would have created an OII with authority to preempt state law as it affected U.S. relations with foreign governments, for example, trade treaties.

That bill stalled on the House floor last Sept. 17 because of objections by Rep. Jackie Speier, D-Calif., that it was too broad and could possibly be used to preempt the strong consumer protection provisions of California's insurance laws.

The bill was pulled from the suspension calendar by House Speaker Nancy Pelosi, D-Calif., at Ms. Speier's request, according to several staffers at the House Financial Services Committee, as well as several industry lobbyists. Ms. Pelosi and Ms. Speier represent neighboring districts in California.

In the letter, Ms. Bean and Mr. Royce said they want to "encourage" Mr. Geithner to either "create an office within Treasury or assign a high-level Treasury appointee to an insurance portfolio to fill a void on insurance oversight and expertise at the federal level."

Specifically, the letter cited the failure of AIG, saying "the apparent risk of a systemic shock to the broader economy was the reason behind the government's intervention to prevent the collapse of AIG."

"We all share the belief that we must take steps to ensure that a similar situation does not occur in the future, and we believe that an important first step ought to be the establishment of an office within Treasury which would have a knowledge base and understanding of insurance operations."