Congress should concentrate on drafting legislation to reduce systemic risk to the financial system before tackling solvency and consumer protection in the stable insurance sector, the Property Casualty Insurers Association of America's chief executive officer contends.
David Sampson, president and CEO of PCI, made his pitch as the insurer group unveiled a report sent to all members of the House Financial Services Committee, illustrating the distinctions between solvency and systemic risk regulation.
Mr. Sampson said the debate on the future of financial services regulatory reform is "an issue of existential importance" that will have a deep impact on both consumers and the industry.
"It is imperative that the p-c industry have a strong voice during these important discussions on systemic risk and regulatory reform," he said, adding that his association is ready to provide the necessary technical expertise.
Mr. Sampson said PCI prepared the paper and is lobbying Congress intensively on the issue because the group believes "it's the most critical issue facing our industry today," adding that engagement is necessary to "prevent unintended, negative consequences to our industry, which could negatively impact consumers."
Mr. Sampson also sought to differentiate the industry from banks, noting that the vast majority of insurance markets are operating normally and continue uninterrupted. He said policyholder surplus remains healthy, and that A.M. Best has downgraded fewer than 4 percent of carriers.
PCI wants Congress to distinguish between solvency regulation, which focuses on individual financial services consumers within each market sector, and systemic risk regulation, which concentrates on limiting the spread of failure from one market to another, and beyond to the global economy.
Another difference cited by PCI is that solvency regulation is conducted by the primary functional regulator for each subsidiary, while systemic risk regulation is conducted by consolidated umbrella supervisors.
Mr. Sampson suggested that once Congress has addressed systemic risk and imposes regulation designed to prevent the current crisis from reoccurring, then a review of the larger financial system and regulatory structure can take place.
In that context, Congress could then address optional federal chartering, establishment of an Office of Insurance Information, modernization and reform of the nonadmitted and reinsurance markets, as well as uniform producer licensing.
Robert Gordon, senior vice president of policy development and research for PCI, said federal regulation of insurance would create a "massive new bureaucracy."
However, his assessment was contrary to the findings of a study commissioned by supporters of an OFC released earlier in the week by the Promontory Group. The study said a federal insurance office would likely employ 2,390 full-time staff and have an annual budget of $465 million. Currently, state regulation is estimated to cost a minimum of $1.1 billion a year.
This would make the insurance office a "relatively small agency" compared with other federal financial regulatory agencies, according to the study, which concluded there would also be benefits in savings for the largest insurers from economies of scale if they came under federal oversight.
Mr. Gordon criticized the report, contending federal oversight would replicate the same regulatory situation that caused the current banking collapse.
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