NAIC, NAMIC, IIABA React To GAO Regulatory Report
BY ARTHUR D. POSTAL
National Underwriter News
January 12, 2009
WASHINGTON --Reacting to a General Accountability Office report suggesting Congress look into possibly creating a federal insurance charter and U.S. insurance regulatory entity, state insurance regulators cautioned against "unjustified changes."
Coinciding with the comment from the National Association of Insurance Commissioners, the National Association of Mutual Insurance Companies noted that the report only mentions OFC and a federal regulatory entity but "makes no such recommendation and acknowledges that the authors did not study proposals for an OFC."
The Independent Insurance Agents & Brokers of America, like the other groups, reacted by praising state regulation and questioning the need for an OFC.
NAMIC pointed out that the report states that establishment of a federal insurance charter could "have unintended consequences for state regulatory bodies and for insurance firms as well."
The GAO report outlined a framework to provide increased oversight and revise a "fragmented and complex" regulatory system for financial services and said Congress should focus on coordinating accountability of regulators and covering all activities which pose risks or are otherwise important to meeting regulatory goals.
In a statement, Roger Sevigny, NAIC president and New Hampshire insurance commissioner, commended the report and said the NAIC "looks forward" to working with the new Congress and administration to "strengthen and improve our state-federal regulatory system with meaningful reforms."
But concerning the OFC concept, he noted, as did NAMIC, that GAO did not mention it as a recommendation. He said state insurance regulators believe "such a proposal would only increase the complexity of the current U.S. financial regulatory structure."
Moreover, Mr. Sevigny said an OFC does "not address the gaps in regulation or inadequate coordination and communication between functional regulators."
In defending the current, state-based system, Mr. Sevigny said that "state insurance regulators are continuing efforts to make adjustments, as needed, in the ever-changing insurance marketplace."
He said the NAIC "is pleased to point out" that the study acknowledges that state regulators are positioned to "move more quickly and more flexibly to respond to activities causing harm to consumers" than federal regulators.
He also said, "We have all witnessed how lax federal regulation and oversight has contributed to the current financial crisis and warn against any plan to create a regulatory authority that is solely federally based."
Jimi Grande, NAMIC's vice president for federal and political affairs, said the report was evidence the state system worked well, and "the stringent state financial and accounting insurance standards ensured that even as the nation's non-insurance segments experience economic disruptions, the property-casualty insurance sector remains solvent and able to meet claims obligations."
An initial draft version of the GAO report did not contain much mention of the insurance sector; the portions dealing with OFC and an insurance entity came after the American Council of Life Insurers, which advocates an optional charter, sent a comment letter criticizing the draft.
Charles Symington, IIABA senior vice president of government affairs, said, "Despite some assertions to the contrary, the GAO does not formally recommend that an optional federal charter be debated. The study only mentions OFC in passing and that an OFC regime could be considered by Congress."
"Once OFC is studied fully through the prism of the recent financial services market turmoil, it will be clear that it would only promote a race to the bottom and result in haphazard deregulation to the detriment of consumers," said Mr. Symington in a statement.
"We believe that the GAO's comment that there could be 'unintended consequences for state regulatory bodies and for insurance firms as well' from such a system is fair warning that an OFC would create many more problems than it would allegedly solve."
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