WASHINGTON–The president of the American Council of Life Insurance is taking strong issue with comments by a California-based consumer group that an optional federal insurance charter would “federally deregulate insurance.”
The letter, written by the “Consumer Watchdog” organization, was sent to Treasury Secretary Tim Geithner in an effort to persuade him not to use creation of an Office of Insurance Information within Treasury as a “stalking horse” for an optional federal insurance charter.
The Consumer Watchdog letter was sent in reaction to a Jan. 23 letter by Reps. Melissa Bean, D-Ill., and Ed Royce, R-Calif., asking that the Treasury Department unilaterally establish an OII as an “interim step” to some form of federal insurance regulation.
In response, Mr. Frank Keating, president and chief executive officer of the ACLI, said the federal government must develop an insurance regulatory presence with the capacity to monitor the insurance marketplace and identify risks to consumers, the industry and the broader financial system before they reach the “crisis stage.”
“Life insurance is a $5 trillion industry which affects the lives of almost all Americans and closely interacts with banks and securities firms,” Mr. Keating argued.
“Consumers cannot afford a regulatory structure in which federal financial regulators are effectively walled-off from overseeing the insurance marketplace,” he added.
Mr. Keating also said that establishing a national insurance regulatory option “would close this gap.” He made this comment the day that Reps. Bean and Royce said they would introduce legislation next week that would create an OFC.
“The national insurance regulatory office would perform two functions,” Mr. Keating said.
“First, it would directly regulate those insurers that are federally chartered. Second, through its direct regulatory activities and interactions with fellow regulators, the office would have a window on the broader insurance market and be able to spot trends that might affect the system,” he added.
The Consumer Watchdog letter said, “While the need for a financial regulatory overhaul is clear, it should not be used as a stalking horse for insurance deregulation.”
The letter argued that Reps. Bean and Royce and the five House colleagues who signed on to their letter “are not seeking greater federal regulation.”
To the contrary, the letter said, “their purpose is to allow insurers to escape meaningful oversight altogether.”
The Consumer Watchdog letter said proponents of an OFCE “have made no secret of the fact that they consider an insurance office at Treasury to be a vehicle for limiting the role of the states in the insurance marketplace.”
The letter added, “Consumers will pay the price if state insurance regulation is preempted.”
They cited a California ballot initiative approved by voters in 1988, Proposition 103, which they argued “has protected consumers from insurance company rate gouging, illegal surcharges and other abusive practices.”
“This law has long been a primary target for insurance companies and their Congressional allies who want Secretary Geithner to begin the process of federal preemption,” the letter said.
But, Mr. Keating defended federal regulation.
“An optional system is not a euphemism for 'no regulation,'” he said.
To the contrary, in the wake of the financial crisis, Mr. Keating said that “the marketplace will not have confidence in an insurance company that comes under weak financial and market conduct standards.”
He denied that insurers with a choice between state and federal regulators would go venue shopping to find the least supervision. “The rhetoric about 'regulatory arbitrage' is overblown,” he said. “An optional system would preserve state regulation for insurance companies that would be better served by it, perhaps smaller or regional companies.”
“The key is to maintain high standards of financial solvency and marketplace conduct at both the state and federal levels,” he added.
(Arthur Postal can be contacted at apostal@nuco.com or 202-728-0506)
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