Testifying before the Senate Banking Committee today, representatives from life and P&C industries associations presented diverging recommendations about changes to insurance regulation, as revealed by advance copies of the remarks of Frank Keating, president and CEO of the American Council of Life Insurers (ACLI) and John T. Hill, president and COO of Magna Carta Companies (New York) and chairman-elect of the National Association of Mutual Insurance Companies (NAMIC). Keating and Hill spoke before the congressional Committee's hearing entitled "Perspectives on Modernizing Insurance Regulation," along with representatives of the National Association of Insurance Commissioners (NAIC), the Independent Insurance Agents and Brokers of America (the Big "I"), and others.
The ACLI's Keating supported the creation of a federal insurance regulatory body "as a necessary component of comprehensive financial oversight reform aimed at identifying and addressing systemic risks before they reach the crisis stage." Keating emphasized what he called the "systemic importance of our industry" to the economy in general and to the financial security of retirees and the general public.
In the case of insurers large enough to pose systemic risk to the financial system, Keating questioned the ability of a federal regulator to effectively coordinate with multiple state regulators, especially considering the differing and incompatible standards they affirm. Keating also noted that state regulators lack the authority to set U.S. policy or negotiate and enter into treaties covering global financial regulatory issues.
These shortcomings created a "systemic regulatory gap," according to Keating, which he recommended be filled "through the creation of a federal insurance regulatory authority, like every other member of the G20."
NAMIC spokesperson Hill affirmed that the current situation required that Congress act, but should do so "prudently and responsibly, focusing limited resources on the most critical issues." Hill expressed NAMIC's support for a "reformed system of state-based regulation of insurance," and made three specific recommendations; that Congress address systemic risk by focusing on financial products that pose a risk to the entire financial system rather than particular institutions; that it establish an Office of Insurance Information to inform federal decision-makers on insurance issues and facilitate international agreements; and that it expand the President's Financial Working Group to include state regulators.
Hill told members of the Committee that, unlike other financial services sectors, such as life insurers, P&C carriers continue to be well capitalized and neither seek nor need federal funding. "The industry is competitive, solvent and generally well-regulated," he said.
Whereas the failure of 42 banks so far revealed the weakness of the banking regulatory system, Hill asserted, the P&C industry has emerged from 2008 with an excellent solvency record, despite a large drop in investment income and the fourth-most expensive hurricane in U.S. history. "The state-based regulatory system has, in fact, been one of the few bright spots in our nation's regulatory structure," he said.
Hill urged the Committee to contrast "main street organizations continuing to meet the needs of their local markets, and those institutions that caused this crisis and have either gone out of business or required unprecedented government financial intervention."
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio