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Insurers Measure Expectations After Elections

Preoccupation with financial crisis-related woes is likely to drive the new administration to implement some form of federal oversight of the insurance industry.

In less interesting times, the question for insurance industry observers in the wake of the U.S. national election would be how the new government would impact the industry. Given the extraordinary economic circumstances the nation now faces, however, the question is more likely to be what effect the financial crisis will have on the new administration.

The contrast between the old administration and the new, Democratic Obama administration can only be blunted by the extreme measures proposed by the Bush administration that some of its harsher critics have characterized as bordering on socialism. Still, the greatest short-term effect of the election will be that the country gets "a whole new set of actors in the executive branch," comments Ben McKay, SVP, federal government relations, for the Property Casualty Insurers Association of America (PCI; Des Plaines, Ill.). The nomination of New York Federal Reserve President Timothy Geithner as Treasury Secretary signals the likelihood of some degree of continuity with current Secretary Paulson's policies, but, McKay believes, "One would expect some new thinking."

Among those expectations, McKay says, there is likely to be a de-emphasis on helping companies and an increased emphasis on helping consumers. "Some members on Capitol Hill, among both the old and the new guard," according to McKay, "are starting to say, 'Well, the top-down approach didn't work; maybe the bottom-up will -- let's start looking at plans and programs that actually impact the consumers directly and not as some secondary or tertiary effect.'"

More stimulus packages for troubled industries are likely, McKay adds, but only as long as those seeking help demonstrate seriousness about their responsibility. The message Congress is giving is, "'Prove to us that you get it,'" says McKay. "Because if you're throwing parties in an industry that is going bankrupt or you're flying in on private jets, you're not signaling to anyone that you have a clue."

Similar expectations will likely characterize the new government's regulatory interaction with the insurance industry. If it weren't for the AIG debacle, the government's attentions would likely be focused on banking and other financial services sectors, according to Chad Hersh, an Austin, Texas-based principal within Novarica's insurance practice. But, "Other insurance companies will be swept into some new regulation through no fault of their own," he remarks. "Carriers will need to demonstrate that they are willing to subject themselves to additional scrutiny, possibly in the form of federal regulation."

That is something the National Association of Insurance Commissioners (NAIC) hopes will not come to pass. "We continue to be adamantly opposed to federal regulation of insurance, but we do recognize the need for a better-coordinated regulatory effort within the financial sector," says Roger Sevigny, president-elect, NAIC.

Consultative Relationship

Any federal regulatory efforts, Sevigny believes, should include some kind of consultative relationship with the existing state insurance authorities. "We would prefer to be at the table as something is being formulated," he comments.

It is inconceivable that state regulatory bodies would be dissolved, in the view of PCI's McKay. "Most of the Democratic members that I talk to in Congress ... think state regulation is the right level -- it's close to the people," he explains. However, since the financial crisis happened in some measure because of siloed regulation, the government is moving in the direction of having one systemic risk regulator, McKay believes.

Interestingly, however, the prospect of an optional federal charter (OFC) seems to have been derailed. "The chances for OFC as it has been proposed are nil and none," says NAIC's Sevigny. "The new Congress isn't going to have much of an appetite for reducing regulation, and OFC is essentially an effort of deregulation."

But while an OFC may be dead, federal regulation of the industry surely is not. "I've heard from a couple of sources on the Hill that there's going to be federal regulation, and it's not going to be optional," PCI's McKay says.

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

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