Federal Oversight Foes Oppose Move For Treasury To Create OII Unilaterally

Drafted by Reps. Melissa Bean, D-Ill., and Ed Royce, R-Calif.–and later signed by five additional members–the letter was presented to Mr. Geithner shortly after his confirmation, asking him to establish OII as one of his first actions.

NAMIC and COFIR e-mailed members of Congress discouraging them from signing onto the Bean/Royce letter, arguing that Mr. Geithner should not create an OII within Treasury without congressional authorization and guidance.

While the Bean/Royce letter does not suggest any subsequent action once Treasury creates an OII, NAMIC and COFIR spoke out against the proposal because they believe the next step would be creation of an optional federal charter, which both groups oppose, according to Jason Roe, a managing partner of the Federal Strategy Group, a lobbying firm representing COFIR.

"COFIR does not oppose establishment of an OII and, in fact, did not oppose Rep. Kanjorski's legislation when it was considered by the House Financial Services Committee last summer," Mr. Roe noted. "We strongly believe, however, that it should be developed through the legislative process and not by regulatory fiat."

He added that "it is important for all the stakeholders to have constructive input into this, and the best route is through congressional action."

He said Rep. Kanjorski "developed specific, well-defined objectives and expressed to interested parties that OII was not intended as a first step toward establishment of a federal insurance regulator."

NAMIC and COFIR said in their e-mail, "Insurance regulation is an enormously complex matter, and there is no need to ask the Treasury Department to unilaterally begin to reform a system that already works." It added, "State attorneys general and insurance commissioners have done an excellent job protecting consumers and the U.S. economy. This is not the time to potentially disrupt a system that has kept a market healthy and stable."

"We urge you not to sign the letter" to Mr. Geithner, "and to work with us to continue to maintain the effective state-based insurance regulation system," the groups said in their e-mail.

Jimi Grande, vice president of federal and political affairs at NAMIC, said his group "supports an Office of Insurance Information," but only "as introduced by Rep. Paul Kanjorski in 2008." He said this approach could provide information about the property-casualty industry's health to a systemic risk regulator through a central repository set up to gather and analyze information already collected by state regulators–such as insurer investment activity, capital adequacy and loss exposure.

However, Mr. Grande said, "we are concerned about Reps. Bean and Royce's previous efforts to create an OFC."

He explained that "the regulatory failures that led to the current financial crisis were the result of either regulatory gaps–such as credit default swaps and other exotic financial instruments–or products that were regulated at the federal level."

NAMIC, he said, "strongly opposes any legislation that would lead toward federal or dual regulation of the property-casualty insurance industry."

Meanwhile, the Independent Insurance Agents and Brokers of America–another foe of federal oversight, but a strong supporter of an OII–wrote a letter last week urging President Barack Obama to ensure that state regulation is preserved in any proposal developed by the administration to reform financial services oversight.

In its letter, IIABA President Robert Rusbuldt wrote that "while in definite need of targeted regulatory reforms to enhance uniformity and efficiency, state regulation of insurance has excelled at these two primary responsibilities, and we want to ensure that this fact is not lost in the overall debate on financial services regulatory reform."

Mr. Rusbuldt said IIABA believes that any financial services regulatory reform efforts must comport with two basic tenets.

First, he said, the administration and Congress "should attempt to fix only those components of the regulatory system that are broken…," adding that "second, no actions should be taken that would in any way jeopardize the protection of the consumer."

He said the "state-based system of insurance regulation has served both policyholders and the insurance industry well for over 100 years," adding that "state insurance regulators actively monitor insurance entities for potential financial trouble and have many different tools to help insurers navigate adverse market developments."

In addition, the IIABA letter said, "the state system utilizes a very effective safety net, the state guaranty fund mechanism, to protect consumers in the rare case of insurer insolvency."

The letter concluded by saying that even the failure of American International Group, "whose collapse emanated from its Financial Products division, not its insurance operations, highlights the strength of the insurance regulatory system."

Mr. Rusbuldt argued that "throughout the collapse and federal rescue of this large financial services holding company, AIG's insurance subsidiaries have been consistently hailed as healthy and stable. These state-regulated insurance entities continue to pay claims to consumers, which is the strongest testament yet to the strength of insurance regulatory system."