Splintered Reactions to Geithner's Stance on Regulation

Treasury Secretary Timothy F. Geithner's recent remarks before the House Financial Services Committee about the creation of an optional federal charter regulatory system have educed a fractured response from leading insurance associations.

During the hearing, Geithner discussed the need to outline steps to "protect against systemic risk" and "lay out a detailed framework for stronger rules to protect consumers and investors against fraud and abuse."

Leigh Ann Pusey, president of the American Insurance Association (AIA), agreed that new rules should protect consumers and policyholders and "encourage innovation and high standards that will create a race to the top, rather than a race to the bottom."

In a written statement, Pusey spoke in favor of federal regulation to evaluate the soundness of the U.S. insurance sector, adding that regulation at the state level was not a sustainable approach.

"The current crisis has exposed that the state-based insurance regulatory structure is fragmented and not well-equipped to handle the capacity of today's regulatory challenges," Pusey said.

The National Association of Mutual Insurance Companies (NAMIC) had a different take, asserting that P&C regulation should "remain at the state level since efforts to establish an optional federal charter or federal oversight of property/casualty insurance would lead to inefficient, costly, and confusing dual regulation."

Jimi Grande, vice president for federal and political affairs at NAMIC voiced skepticism about Geithner's statement that federal regulatory authority should not supplant the effective state regulation of insurance and pointed out that the administration's proposal left many questions unanswered.

"We are concerned that the secretary and some members of Congress may use the current crisis as an opportunity to establish federal regulatory authority over insurance activities," Grande said. "We look forward to working with policymakers on the issue but urge Congress and the administration to "tread carefully as they craft solutions to the current turmoil and target only those elements of the financial services industry where there are regulatory gaps."

Similar to NAMIC, PCI also asked that Congress to exercise caution and "proceed in a thoughtful, thorough manner" so as not to disrupt a system that is already working well. In particular, PCI expressed concern about enabling the Federal Deposit Insurance Corp. (FDIC) to tap capital from insurers in holding companies and potentially use those monies to prevent insolvencies in other industries.

"Draining capital intended to protect policyholders could potentially undermine an industry that is largely solvent in order to prop up other industries with solvency problems," said David A. Sampson, PCI's president and CEO. "We urge Congress to ensure that [this proposal] does not potentially undermine a largely healthy industry, and hundreds of millions of consumers, to bail out troubled, excessive risk-taking sectors of the economy."