Wednesday, 17 June 2009 10:17

U.S. House Prepares for Administration’s Insurance Reform Proposal

The U.S. House of Representatives Financial Services Committee’s Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises held a hearing regarding “Systemic Risk and Insurance.” Rep. Paul E. Kanjorski, D-Pa., chairman of the subcommittee, continues to push for federal regulation of insurance. Kanjorski has legislation that will create an Office of Insurance Information (OII) within the U.S. Department of the Treasury. This bill does not go as far as other initiatives that provide insurers with a federal or state regulatory option.

            Kanjorski said, “Insurance is a complex and important part of the U.S. financial industry with more than $6.3 trillion in assets under management and $1.23 trillion in annual premiums. We need to recognize this reality by modernizing the overall regulatory treatment of insurance. We also need to protect against the risks certain sectors of the industry may pose and address the greater sensitivity that some industry segments have to external events.”

Kanjorski went on to emphasize that insurance companies pose systemic risk, are global and complex, and therefore need to be federally regulated. “Because a number of these businesses could pose systemic risk, I believe that the federal government should directly examine all complex financial holding companies, including those whose primary activities involve underwriting insurance and those who play with credit default swaps … In order for effective communication and dialogue to take place on the international stage, we must have a single point of contact for the United States on these matters. Moreover, insurers must have a federal regulatory voice on par with the banking and securities sectors in our financial markets so that the industry can communicate with its peer regulators at home.”

            Witnesses that provided testimony included:
            •  Peter Skinner, member, European Parliament;
            •  Michael T. McRaith, director, Illinois Department of Insurance, on behalf of the National Association of Insurance Commissioners;
            •  Teresa Bryce, president, Radian Guaranty Inc., on behalf of the Mortgage Insurance Companies of America;
            •  Sean McCarthy, chief operating officer, Financial Security Assurance Inc.;
            •  Kenneth F. Spence III, executive vice president and general counsel, The Travelers Companies Inc.;
            •  Franklin Nutter, president, Reinsurance Association of America;
            •  Patrick S. Baird, chief executive officer, AEGON USA, LLC, on behalf of the American Council of Life Insurers; and
            •  John T. Hill, president and chief operating officer, Magna Carta Companies, on behalf of the National Association of Mutual Insurance Companies.

Spence supports Kanjorski’s proposal for an Office of Insurance Information. He testified, “The creation of an Office of Insurance Information, as the chairman has proposed in his legislation, would bolster the federal government’s presence in and understanding of the insurance sector. The OII would bring needed information about the insurance marketplace to Washington, and would give the United States a single voice with which to speak on international insurance policy and trade matters. Presumably, an OII could work in conjunction with a systemic regulator to provide and exchange information and ensure that the resources of both agencies are fully utilized.”

            McRaith said states should regulate insurance companies. He included in his testimony, “A federal regulator would be unnecessary, duplicative and adverse to consumer interests, but as I have testified previously to this subcommittee, state insurance regulators endorse the goal of increasing knowledge of insurance at the federal level.” McRaith concluded, “The state-based insurance regulatory system is one of the critical checks and balances, without the perils of a single point of failure and omnipotent decision making. States have a long history of consumer protection and market stability – the two pillars on which any system of financial stability regulation can, and must be built.”