Industry Gives Mixed Reaction to Treasury Department's Blueprint for Regulatory Reform |
|
|
|
Written by U.S. Insurance News
|
|
Monday, 07 April 2008 |
The Department of the Treasury has a plan to reform regulation of financial institutions and the insurance industry, and it's drawing a mixed reaction.
The department's "Blueprint for a Modernized Financial Regulatory Structure," announced last summer and released March 31, includes short-term, intermediate, and long-term recommendations for reform of the U.S. regulatory system.
"We should and can have a structure that is designed for the world we live in, one that is more flexible, one that can better adapt to change, one that will allow us to more effectively deal with inevitable market disruptions and one that will better protect investors and consumers," said Secretary Henry Paulson upon the release of his department's plan. "The challenge is to evolve to a more flexible, efficient, and effective regulatory framework-and that is the purpose of this blueprint."
The American Insurance Association (AIA) immediately threw its support behind Treasury's proposals, especially the one to establish an optional federal charter (OFC) for insurers.
"The inclusion of an optional federal charter for insurance, as outlined in the Treasury blueprint, is a major milestone in that it recognizes the important role that the insurance industry now plays in this new financial world of integrated and interconnected markets," said Gov. Marc Racicot, AIA president. "Providing insurers with the option of a single regulator for insurance will benefit consumers and will be more efficient, effective, and rational given the 'increasing tension' a state-based regulatory system creates."
Racicot stated that the AIA and its member companies look forward to working with Congress to see that the proposals included in the blueprint are enacted.
But not everyone likes what they've seen in the blueprint, including the National Association of Mutual Insurance Companies (NAMIC). The association reaffirmed that it supports insurance regulatory reform and the goals of the Treasury Department to achieve efficiency, consumer protection, and the elimination of regulatory overlap. However, it doesn't believe the blueprint will achieve all those things.
"NAMIC urged Treasury to focus on the philosophy and execution of regulatory objectives; however, the blueprint focuses more on consolidation of regulatory authority," said Charles M. Chamness, NAMIC's president and CEO. "The inefficiencies in the insurance marketplace are less the result of the current functional regulatory framework than the philosophy and execution of the regulatory objectives."
Chamness said the goals that the blueprint tries to achieve can better be reached "by a rationalized regulatory structure for the 21st century that focuses on adoption and implementation of competition-based models for operation and regulation."
"The greatest costs imposed upon the insurance marketplace come less from multiple jurisdictions or overlapping regulatory authority than from the regulatory structure itself in the form of price and form regulation," he added.
Chamness also said that creating a dual regulatory structure is a "threat" to effective insurance regulation.
"The Treasury recommendation for an oversight office and a federal guarantee system appears to be a step toward dual and overlapping regulation," he concluded.
NAMIC is not alone in its concern about the Treasury's blueprint. The National Association of Professional Insurance Agents (PIA National) has made clear its opposition to the insurance-related proposals included in the plan.
Last month, the national Board of Directors of PIA unanimously passed a resolution reaffirming the association's opposition to all proposals calling for an OFC and the creation of a federal insurance regulator, both included in the blueprint.
"The proposals unveiled ... by Treasury Secretary Paulson are being billed as a strengthening of financial services regulation but in the case of the recommendations regarding insurance, the opposite is true," said Robert Page, PIA national president. "In reality, what is being proposed for insurance is more deregulation under the guise of strengthened regulation, along with a transfer of regulatory authority from the states to the federal government."
Page noted that federal involvement is being proposed as a way of making insurance regulation more efficient, but he pointed out that the subprime mortgage crisis occurred under federal regulation.
"The subprime crisis happened under federal regulation at the same time that the insurance industry, which is under state regulation, remained on a firm financial footing while achieving record profits," he said. "The insurance industry is solvent, strong, and well regulated at the state level. It needs to stay that way."
In opposing the Treasury's blueprint, PIA reiterated its support of state regulation.
"Let there be no doubt," Page said. "PIA is opposed to these proposals and is steadfast in support of state regulation of insurance."
|
