National Insurance Office Scope, Not Creation, Divides Industry

Concerns similar to those made by representatives of smaller insurers and independent agents were made by officials of the National Association of Insurance Commissioners.

Therese Vaughn, NAIC CEO, said state insurance commissioners would support creation of the FIO, as long as it had a limited role involving international agreements and systemic risk and left solvency issues to the states.

"We fully support the goal of creating a national insurance office as a resource for the federal government and a conduit for the states, but we will strongly oppose any efforts to use such an office as a precursor to establishing a federal insurance regulator," Ms. Vaughn said.

She added that NAIC support for the new office is "predicated on the notion that the office be a tool to connect the state regulatory system with the federal regulatory system, and not be an instrument to diminish state insurance regulation."

She also noted that earlier versions of legislation creating a federal insurance office "made clear that the office would not create a supervisory role over insurance at the federal level, and we urge inclusion of identical language into any final legislation."

All the comments were made in connection with a hearing on "capital markets regulatory reform" held by the House Financial Services Committee.

The legislation was introduced by Rep. Paul Kanjorski, D-Pa., chairman of the Capital Markets Subcommittee of the House Financial Services Committee.

In his opening statement, he said the bill would "provide national policymakers with access to the information and resources needed to respond to crises, mitigate systemic risks and help ensure a well-functioning financial system."

He added that the credit meltdown highlighted the lack of expertise within the federal government regarding the insurance industry, especially during the collapse of American International Group and last year's turmoil in the bond insurance markets.

"My bill would rectify these shortcomings and promote stability in our insurance markets," he added.

The hearing includes separate panels discussing three components of the omnibus proposals from the Obama administration, designed to improve oversight and regulation of the nation's financial services industry under the general hearing of "capital markets regulatory reform."

The three areas are "strengthening investor protection," enhancing oversight of "private pools of capital" and creating a Federal Insurance Office.

"It is imperative, however, that any statute authorizing the establishment of an insurance information office be designed carefully and with proper safeguards and not 'set the stage' for federal insurance regulation," he added.

Stef Zielezienski, senior vice president and general counsel of the American Insurance Association, said, "While the discussion draft does not create a national functional insurance regulator, the FIO, if structured correctly, would represent a substantial contribution toward broadening and deepening our nation's understanding of the critical role of insurance in our national system."

And David Atkinson, executive vice president of the Reinsurance Group of America, representing the Reinsurance Association of America, said reinsurers "strongly support" the legislation drafted by Rep. Kanjorski.

He added that the legislation "lays the foundation to ensure that the federal government" has the authority to gather information so that it has a more thorough understanding of the complexities of insurance and reinsurance issues and how policy decisions may affect these markets.

Mr. Atkinson said the draft legislation also authorizes the federal government to coordinate federal efforts and establish federal policy on prudential aspects of international insurance matters; the authority to enter into international insurance agreements on prudential matters; and the authority to preempt state insurance measures that are inconsistent with these international insurance agreements.

Reflecting the views of smaller insurers, however, Janice Abraham, president and CEO of United Educators Insurance, testifying on behalf of the Property Casualty Insurers Association of America, said, "PCI supports responsible regulatory reforms that reflect principles of good insurance regulation.

"While we have not taken a position on proposals to create an office of insurance information, our members have concerns and questions about a greatly expanded federal insurance oversight office," she added. "We're not broke, we didn't cause the financial crisis, and we don't need a new federal oversight that may ultimately increase costs for consumers."

And Spencer Houldin, president of Ericson Insurance, a Connecticut-based independent agency who testified on behalf of the Independent Insurance Agents and Brokers of America, said that, "Although IIABA strongly supports state insurance regulation and would oppose any efforts to undermine that system, we recognize the benefits that can be achieved by establishing a non-regulatory body at the federal level that is able to review industry data, advise federal officials on critical insurance issues, and coordinate efforts on international insurance matters.