The Obama administration’s plan to change regulation of financial companies started as an overhaul, but now it looks like it’ll be more of a tweak.
The proposal no longer includes the initial plan to set up a national regulatory body to oversee insurance firms. Instead, the administration will leave regulation up to the various state commissions, as is currently the case.
Insurance trade groups welcomed the modified plan leaving regulation of insurers in states’ hands. But those groups clearly had different reasons for backing the administration’s new position on the divisive issue.
The Treasury Department’s white paper detailing its plans for financial regulation includes some provisions for insurers, mainly addressing risks insurers could pose to the financial system and boosting consumer protection by closing gaps in the regulatory system. Treasury’s plan also aims to heighten consistency and uniformity among state regulators, while stopping short of calling for a new federal regulator.
The white paper said Treasury’s proposed legislation would call for creation of an Office of National Insurance, which would “gather information, develop expertise, negotiate international agreements, and coordinate policy in the insurance sector.”
One way Treasury proposes to make regulation more uniform is to create a federal charter for insurers. Absent that, the white paper says, states can help by making their regulations more consistent with each other.
Brokers Back Plan
The Independent Insurance Agents and Brokers of America trade group stands solidly behind the administration’s recommendations.
“We’re encouraged by the fact they didn’t recommend changing or revamping state regulation,” said Tom Koonce, assistant vice president in charge of federal government affairs for the trade group. “We’re strong supporters of state regulation, and we believe it has protected consumers.”
The group also favors the administration’s plan to bring uniformity to certain areas of insurance regulation. But the plan lacks specifics, so it remains to be seen how that will be accomplished. The agents and brokers group has backed bills to make areas such as surplus lines and agent licensing more uniform, Koonce said.
“I think consumers are well-protected at the state level,” Koonce said. “Insurance didn’t cause this crisis. It’s been pretty healthy and stable.”
Life Insurers Want Regulator
Life insurers, by contrast, support the development of a federal regulator to take over the states’ role.
Frank Keating, CEO of the American Council of Life Insurers trade group, views the administration’s plan as a step toward standardizing regulation of insurers.
“The white paper recognizes that the 135-year-old state regulatory system is riddled with inefficiencies, inconsistencies, and unnecessary barriers to competitiveness,” Keating said in a statement. “The goals outlined by the white paper cannot be achieved within the existing state-by-state regulatory system.”
Keating called the plan to create an Office of National Insurance “a first step towards eventual establishment of a federal functional insurance regulator.”
His group also sees the optional federal charter as one way to reach the government’s goals.
The life insurers group also favors creation of a federal office in order to improve U.S. insurers’ international effectiveness. That’s sorely needed, the Treasury Department said.
Property, Casualty Insurers Divided
The American Insurance Association, which represents property and casualty insurers, backs federal regulation, too.
“The property-casualty insurance industry remains significantly hampered by an outdated and fragmented state-based regulatory system that is inherently limited and cannot effectively meet today’s global economic challenges,” AIA President Leigh Ann Pusey said in a statement.
Others lined up in favor of keeping oversight power with the states.
“State regulation’s strong solvency system and consumer protections have served consumers well,” said Therese Vaughan, CEO of the National Association of Insurance Commissioners, in a statement. She said the proposal is right to focus on systemic risk and regulatory gaps.
The Property Casualty Insurers Association of America likewise favors state-level regulation, as does the National Association of Mutual Insurance Companies. The latter group was concerned a federal body might overlook concerns of the organization’s smaller members.
Congress is expected to consider legislation regarding the proposals this fall.
Steve Watkins ([email protected]) writes from Cincinnati.