NU Online News Service, MAY 14, 4:09 p.m. EDT
WASHINGTON–Consumer advocate and former insurance regulator J. Robert Hunter said today in congressional testimony that the federal government should take over capital, surplus and solvency regulation of insurance.
But that limited U.S. regulatory role must be well defined, said Mr. Hunter and any federal legislative reform should include provisions repealing the McCarran-Ferguson Act that exempts insurers from certain antitrust law provisions.
He made his comments at a hearing on "How Should the Federal Government Oversee Insurance?" held by the Capital Markets Subcommittee of the House Financial Services Committee.
Mr. Hunter is director of insurance for the Consumer Federation of Insurance, Washington, D.C. and former Texas insurance commissioner.
He said states should retain the authority to oversee consumer protections. This should include the ability to regulate rates (including classifications) and policy forms.
In other comments, Patricia L. Guinn, managing director, risk and financial services at Towers Perrin, consulting firm in New York, said any federal regulatory scheme for insurers should address the weaknesses laid bare by the problems at American International Group.
Specifically, she said, federal regulation should mandate capital requirements for the entire company and should include "enterprise stress testing."
"Such requirements would improve transparency into the ability of the consolidated enterprise to withstand extreme loss scenarios," she said, and should include creation of a resolution authority designed to address multi-jurisdictional and multi-entity conglomerates, in coordination with state authorities," she said.
Ms. Guinn also ruled out bank-like regulation for insurers. "Simply extending a regulatory regimen designed for banks would not work well for insurers," Ms. Guinn testified.
"The insurance industry has many distinctive features and market practices," she said. "The federal government should build a knowledge base about the insurance industry by collecting information and by leveraging the collective knowledge and expertise of state regulators and industry associations," she added.
Mr. Hunter said legislation creating federal regulation of insurance should also give the Federal Trade Commission a role that would include studying insurance and assisting the states in identifying consumer protection issues that have national ramifications.
He added that he opposed an optional federal charter for insurers because "such a system cannot control systemic risk, has failed miserably in protecting banking consumers and sets up pressures that can only lead to reduced consumer protections through regulatory arbitrage."
States' authority over insurance should include the ability to address "all key consumer issues." This authority should include the ability to deal with claims abuses, unfair risk classification criteria, the unavailability of needed insurance, complaints and requests for information on insurers, Mr. Hunter said.
A federal insurance office, Mr. Hunter advised, should also "be a repository of insurance expertise, data collection and analysis" and authority "to engage in international insurance issues."
A federal insurance office should be knowledgeable about insurance matters "to help Congress and the administration sort through the tremendous complexities of this industry," Mr. Hunter said.
But, the "office should not be granted vague and open-ended powers of preemption regarding state consumer protection laws or rules in areas that Congress has chosen not to explicitly preempt," he said.
And, he said, a federal office should also be a repository of insurance expertise, data collection and analysis and have the ability to engage in international insurance issues.
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