Kanjorski: Federal Regulation No Longer a Matter of 'If'
By Sean P. Carr, BestWeek
May 14, 2009
WASHINGTON, May 14, 2009 (A. M. Best via COMTEX) -- AIG -- Questions about the federal regulation of insurance are no longer a matter of if, but how and in what form, said U.S. Rep. Paul Kanjorski, chairman of a House Financial Services subcommittee that oversees the insurance industry.
Leading a hearing of the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, Kanjorski said the combination of 2007's and 2008's troubles for bond insurers, taxpayer financing of American International Group Inc. and the requests by some life insurers for infusions of federal capital render the "if" questions out of date. "We can no longer continue to ask the question about whether the federal government should oversee insurance. The answer here is clearly 'yes,'" he said.
In the past, the federal government has failed to appreciate the important role of insurance and its interconnectedness in financial markets, the chairman said. Kanjorski added, "Insurance is complex, and it is time for the federal government to appreciate its importance."
Rep. David Scott, D-Ga., warned against a "radical overhaul" of the state-based insurance regulatory system, saying unnecessary interference could be potentially damaging to the industry and the economy. Scott endorsed a targeted approach and said he plans to reintroduce the National Association of Registered Agents and Brokers Reform Act, a bill he sponsored that passed the House but stalled in the Senate last year. The legislation would have promoted licensing reciprocity by established NARAB as a nonprofit organization that provides multistate licensing, continuing education and other insurance producer qualification needs, without creating a federal regulator (BestWire, Dec. 24, 2008).
A system based solely in 56 states and jurisdictions used to be considered inefficient, but now it is dangerous, said Rep. Ed Royce, R-Calif. Royce -- sponsor, with fellow subcommittee member Rep. Melissa Bean, D-Ill., of legislation to establish an optional federal charter regulator -- said a recent European Union agreement on a Solvency II regime shows the United States needs a "world-class federal insurance regulator" in order to compete.
Any federal action should be taken with an eye to what problems could occur in the future, not solely in reaction to what went wrong in the recent past, said Martin F. Grace, a professor of risk management and insurance at Georgia State University. Grace attended the hearing as part of a panel of outside experts that also included J. Robert Hunter, director of insurance Consumer Federation of America; and Baird Webel, specialist in financial economics, Congressional Research Service.
"Most regulation is reactive and not pro-active," Grace said during a break in the hearing. "What we need is a regulatory system that looks forward. What are the new kinds of risk ... maybe the federal government would have comparative advantage in doing that, because it could see the bigger picture."
Hunter -- a former Texas insurance commissioner and one-time federal insurance administrator, a position which does not currently exist -- said federal and state approaches would each have advantages.
"Looking back and ignoring things like systemic risk, you could say that the states are doing a pretty good of job solvency regulation. But looking forward, if you're going to include systemic risk in a national kind of presence we think the federal government would be better," he said.
Not represented on the panel were voices from insurance companies.
In a statement, Property Casualty Insurers Association of America President and Chief Executive Officer David Sampson said the most important thing Congress should do is address the issue of systemic risk. The U.S. Treasury and the Federal Reserve should continue to "pump life into the ailing capital and credit markets" while working with lawmakers to prevent new systemic risk failures, he said.
"Before attempting to overhaul the entire financial services regulatory system, it is important to determine which sectors of the marketplace actually create systemic risk and to fix the dangerous gaps in federal oversight," said Sampson, whose organization opposes a federal insurance regulator.
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