Greater Federal Insurance Oversight a Given, CEO Panel Agrees
By Sean P. Carr
A. M. Best
May 1, 2009
Greater federal intervention in the insurance business is a given, industry CEOs agreed during a panel discussion at the Independent Insurance Agents & Brokers of America conference and convention.
The questions of the next year will revolve around what forms the new federal role will take and for what lines of business, panel members said. Participating in the discussion were Ted Kelly, chairman, president and CEO, Liberty Mutual; Mike McGavick, CEO, XL Capital; Glenn Renwick, president and CEO, Progressive; Bob Restrepo, chairman and CEO, State Auto; and Robert Rusbuldt, the Big I's president and CEO.
Noting that a number of life insurance companies have applied for federal relief, Kelly said, federal regulation of life insurers "is a given." But he does not see federal regulation stretching past life insurance and large commercial lines. Congress will not want to take on too much responsibility, Kelly said.
"It will not be fought on Main Street and personal lines," he said.
Property/casualty insurers should be "extremely proud" of how they've weathered the current economic crisis, McGavick said. The federal government should not "fix what works," he added.
U.S. Reps. Melissa Bean, D-Ill. and Ed Royce, R-Calif. have introduced the National Insurance Consumer Protection Act, which would establish a national system in which insurers, reinsurers, agencies and producers would be able to register at the federal level and be subject only to a single, national set of standards and regulations (BestWire, April 2, 2009). The bill stipulates a new Office of National Insurance would be required to work with whatever agency Congress and the Obama administration ultimately chooses to serve as a regulator of systemic risk, and for those insurance firms deemed systemically important, federal regulation would be mandatory, not optional.
Panel members expressed little support for an expanded federal role, but generally regarded it as inevitable. Given the political climate, lawmakers will not want to be seen as doing nothing, McGavick said.
The federal government should not be afraid of letting insurers, even AIG, die, Kelly said. "Capitalism without failure is like religion without sin. It doesn't work," he said.
Kelly said no property/casualty company poses a systemic risk, but "we're going to get" a systemic risk regulator. But Restrepo said the near-collapse of American International Group, Inc. showed that some form of a systemic risk regulator is necessary, but he hopes it will not be heavy-handed. "We had a gap in regulation. We need something," he said.
A cardinal sin AIG committed was not understanding everything it was involved in, which caused it to lose focus, Renwick said. Companies that don't fully comprehend the business they're conducting should get out of those areas of business, he said.
Treasury Secretary Tim Geithner has said a new systemic risk regulator is needed to prevent "future AIGs." Geithner said the current financial crisis has brought to light "systemic gaps in the regulatory structure governing our financial markets" (BestWire, March 24).
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