A certain build-up preceded the Senate Banking Committee's March 17 hearing dedicated to "Perspectives on Modernizing Insurance Regulation." The heated rhetoric issued before the hearing by the various insurance trade organizations, combined with a certain sense of foreboding about the mood of the government, suggested a kind of climax was in the offing. Ultimately, while the exchange seems to have been sober, it was cordial in general and characterized by genuine engagement and sympathy on the part of the government.
Those testifying may have felt relief that the government, at least, was not overtly hostile to their positions. But the hearing was also a reminder that a very long process lies ahead. This was not the end — as a great statesman said on another occasion — it was not even the beginning of the end; but it might be the end of the beginning.
The gravity of the financial crisis all but ensures that some kind of federal oversight will come to the insurance industry — change is clearly in the air. However, the prelude to the March 17 hearing carried a certain sense of déjà vu. In mid-February rumors emerged that Representatives Melissa Bean (D-Ill.) and Ed Royce (R-Calif.) were just days from introducing a new bill that resembled previous efforts to advance an optional federal charter (OFC) through the National Insurance Act of 2007.
This news was welcomed by supporters, such as the Washington, D.C.-based American Council of Life Insurers (ACLI), that lauded the move as more important than ever, and was derided by opponents as a transparent attempt to not let a good crisis go to waste. "If OFC is an answer, it is to a different question," remarked Ben McKay, SVP of federal government relations for the Des Plaines, Ill.-based Property Casualty Insurers Association of America (PCI).
When Rep. Bean finally spoke publicly about new legislation, at the Insurance Reform Summit at Indiana State University on March 4, the sense of change returned. For a start, Bean reset the timeline for introduction of a new bill in terms of weeks rather than days, with no clear deadline in sight. Second, the theme of optional legislation was softened: In the intervening weeks, she said, the sponsors of the new National Insurance Modernization Act (NIMA) would be "fine-tuning" key elements, including whether federal charter would be optional or mandatory. Finally, the bill would introduce novel concepts, such as provision for a systemic risk regulator and the establishment of a Federal Office of Insurance Regulation with a presence in every state.
Whether this new approach will enjoy much traction in Congress is anybody's guess, in the view of Howard Mills, chief adviser, national insurance group, Deloitte (New York). According to Mills, it is possible that Congress will act in a way that favors one or the other side of the OFC debate, or that it will take any number of other approaches — it is simply too early to speak beyond some general likelihood, he insists. "Most people seem to think that we will see more regulation, that the state-based regulatory system will remain in some fashion, probably with a federal layer on top of it, and that that layer will focus on the systemic risk question," Mills says.
Among the possibilities is that some kind of federal charter with state regulatory participation will prevail, frustrating the smaller P&C companies whose viewpoint is represented by the National Association of Mutual Insurance Companies (NAMIC). In this respect, NAMIC's position is frequently seen as opposite to the ACLI's position. However, both organizations purport to be comfortable with federal regulation of life insurance alone.
A more fundamental rift exists between the "Main Street" P&C companies represented by NAMIC and the larger P&C players whose scale would give them a distinct advantage under federal regulation. Some large companies have in recent times shed their traditional opposition to federal regulation, as exemplified by Allstate (Northbrook, Ill.) chairman Tom Wilson's March 11 characterization of the current insurance regulatory regime as "a Depression-era hodgepodge."
Hodgepodge or not, that regulatory regime has been the only bright spot during the financial crisis of an otherwise dismal regulatory performance, according to an NAMIC statement. The organization's Jimi Grande says NAMIC believes that Congress and the Obama administration are gaining an appreciation of the role of the "Main Street" companies in the overall economy, given those companies' financial resilience. However, NAMIC fears a regulatory overreaction. "Because of the complexities of both the financial services industry and the current regulatory framework, we believe a slower, more deliberate process will lead to better solutions that address real regulatory gaps without implementing duplicative and ineffective new regulations," Grande tells I&T.
If a slow process is what NAMIC seeks, it is likely to get its wish. "Given the different pace of the House and the Senate, I don't think there will be an agreed-upon bill out of conference committee before the end of next year," remarks Deloitte's Mills. "It could easily go into next year."
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