The property/casualty insurance industry does not pose a systemic risk and should not be subject to any new federal systemic authority, according to recent testimony from two major insurance industry associations.
Both the National Association of Mutual Insurance Companies (NAMIC) and the Property Casualty Insurers Association of America (PCI) testified before a House Financial Services Subcommittee addressing system risk and insurance. The hearing is taking place as Congress mulls legislation that would modernize the regulatory structure of financial services.
John Hill, NAMIC's chairman-elect and president and COO of the New York-based Magna Carta Companies, testified on behalf of NAMIC. Hill made it clear that property/casualty insurance is distinct within the financial services sector.
"The fundamental characteristics of our industry, including conservative and liquid investment portfolios, low-leverage ratios, strong solvency regulation, and a highly competitive and diverse marketplace make it stand out as unique and work to insulate the property/casualty industry from posing systemic risk," he testified.
Throughout the current economic crisis, property/casualty insurers, through prudent management and sound state-solvency regulation, have remained viable and able to fulfill their commitments to policyholders, Hill explained.
In its own testimony, PCI took a different approach but arrived at the same conclusion as NAMIC.
It noted that property casualty insurance has a proven track record of protecting consumers through its state-based system, and that creating a system of dual regulation would result in confusion, as well as higher and unnecessary costs for consumers.
"New federal standards will not improve upon the present state-based system," said David A. Sampson, PCI's president and chief executive officer. "Through the strong system of consumer protections property/casualty insurers provide peace of mind to consumers in their decision making process and use of insurance products. New federal protections administered by any new agency would create a duplicative, inefficient system that would add even more costs for consumers, with little or no benefit."
More as it unfolds.
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