Don't Fence Main St. Insurers With New Rules, PCI Tells Congress

NU Online News Service, Sept. 23, 3:42 p.m. EDT

WASHINGTON–Business and personal lines insurers who did not contribute to the financial crisis should not be the target of new consumer protection regulations, an insurance trade group representative told a House committee today.

J. Douglas Robinson, chairman and CEO of Utica National Insurance Group, Utica, N.Y., representing the Property Casualty Insurers Association of America (PCI), made his comments in testimony before the House Small Business Committee.

"The costs of new regulations almost always disproportionately affect small business," Mr. Robinson said.

"The property and casualty industry is healthy and competitive, and the current system of regulating the industry at the state level is working well," he added.

Mr. Robinson contended that home, auto and commercial insurers have been stable throughout the financial crisis. "We specifically rejected a government bailout, and we do not need additional regulation."

"PCI commends President Obama and Congress for working to ensure that the financial crisis we experienced last fall is never repeated," Mr. Robinson said.

"Achieving this goal requires a focus on fixing what went wrong with Wall Street, without imposing substantial new, 'one-size-fits-all' regulatory burdens on Main Street, small businesses and activities that are not highly leveraged or systemically risky."

He made his comments as Treasury Secretary Timothy Geithner testified before another committee in support of legislation proposed by the administration that will create a Consumer Financial Protection Agency.

Insurers are concerned because under the administration proposal, credit-related products will be regulated by the new agency. The National Association of Insurance Commissioner has also voiced opposition to having the new agency have oversight over any insurance products.

Insurers have expressed worries that other legislation under consideration in Congress could subject insurers to federal regulation as potentially systemically risky.

In his testimony, Mr. Robinson touched on both issues.

He made his comments as Secretary Geithner testified the House Financial Services Committee that the proposed CFPA "will consolidate fragmented consumer authorities into one agency, the Consumer Financial Protection Agency (CFPA), which will write rules, oversee compliance and address violations by non-bank providers, as well as banking institutions."

He said, "Effective protection requires consolidated authority to both write rules and conduct oversight and enforcement."

Mr. Geithner explained, "Combining these authorities will ensure that the agency has a wide range of tools to address any problem within its domain and can choose those that are most effective and impose the least burden."

He argued that to fix the problems that created the recent financial crisis, "you need to have strong minimum national standards for protection that need to apply not just to banks, but to institutions that compete with banks in the business of providing credit. They need to be enforced effectively, consistently and fairly."

And, Secretary Geithner testified, "there need to be consequences for being engaged in (unfair) practices, and the consequences need to be strong enough to prevent that behavior."

In his testimony before the Small Business panel, Mr. Robinson voiced concerns with other administration proposals aimed at curbing speculation and overleveraging by financial institutions that he said "would have a substantial negative impact on small insurers and their customers if not modified."

Specifically, Mr. Robinson said, these included eliminating all non-bank depository institutions, including thrifts. "These proposals would unnecessarily eliminate many small, systemically non-risky financial companies that provide critical community services."

He was also critical of the broad powers that would be given to the proposed new Office of National Insurance.

Mr. Robinson said the proposed ONI "is given too much subpoena and preemption power with inadequate due process or limits on its scope and its ability to enter into international insurance agreements."

In resolving troubled insurance holding companies, "bank regulators should not be allowed to resolve systemic risk failures by reaching into the assets of insurance affiliates," he said.