OFC Sponsors Prepared to Introduce Beefed-Up Federal Insurance Regulator Bill|
By R. J. Lehmann
A. M. Best
February 11, 2009
WASHINGTON, Feb 11, 2009 (A. M. Best via COMTEX) -- Two U.S. House members who previously have sponsored bills offering insurers and producers the option to charter at the federal level are set to introduce new legislation that would grant a federal insurance regulator expanded powers, offices in all 50 states and the ability to compel oversight of firms deemed "systemically important."
Reps. Melissa Bean, D-Ill., and Ed Royce, R-Calif., said they would be introducing the measure, the National Insurance Consumer Protection and Regulatory Modernization Act, shortly after the President's Day recess. Changes were made from prior incarnations of the bill, the lawmakers said, to reflect concerns raised by the economic crisis, the meltdown of the bond insurance sector, and particularly, the near-collapse of American International Group Inc.
"It was the investment side of AIG, not the underwriting, that sank the company, but the obscure investments and the over-leveraging is what put the underwriting side of the business at risk, and the current regulatory model, of course, missed that systemic threat," Royce said in a conference call with reporters.
The law would incorporate consumer protection model laws promulgated by the National Association of Insurance Commissioners into the newly created Office of National Insurance to provide more uniform oversight across the country, as well as enabling insurers to bring more products to consumers, fostering more competitive markets and creating a single point of contact in negotiation of insurance issues internationally, the pair said.
According to Bean, among the biggest differences between the new bill and the earlier National Insurance Act, which the pair sponsored in the 110th Congress, are the powers it would grant to a newly formed ONI to collect data on and exercise oversight of every business unit of a federally chartered insurance holding company.
Also, while earlier iterations of the proposal would have made the ONI an office within the Treasury Department, the new concept would have the national insurance regulator reporting directly to a newly created "systemic risk" regulator for the entire financial system. Though the precise structure of that overarching regulator -- which President Barack Obama has said he will propose in the next two months -- is not yet known, Bean and Royce said they imagine it would have authority to compel certain insurers to submit to federal regulation on the basis of the risks their failure would present.
"Right now, for instance, you had very little exposure to what the broad risks were for AIG, through just one insurance commissioner in New York," Bean said. "With the ONI having access to all the financial data, and with having that national perspective, ideally, existing risk management tools will be applied to better information and there will be a good look from the systemic risk regulator to determine whether we would need additional analyses."
The pair also looked to address concerns that a federal insurance office in Washington would be too far removed from consumers by including language calling for a physical ONI office in every state. The proposal also will call for every national insurer or insurance broker to have a consumer liaison to work with the ONI's Office of Consumer Affairs.
"I would think there's going to be ways to lease existing federal properties, so that it doesn't have to be big in terms of overhead, but so that there is at least some physical presence in each state," Bean said.
Despite the changes, the new measure appears that it will retain support from the groups that have historically supported optional federal charter, including the American Insurance Association and American Council of Life Insurers. AIA spokesman Blain Rethmeier said the group saw the changes as "a very positive development...especially when their efforts are coupled with (Treasury Secretary Timothy) Geithner's comments yesterday that insurance is a critical part of the broad regulatory reforms needed and that a federal functional regulator for insurance has merit."
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