Lawmaker pushes insurance office as part of financial regulatory overhaul
A top House Democrat Tuesday said he would push his bill to create an Office of Insurance Information within the Treasury Department as part of an overhaul of the nation's financial regulatory system.
The office would establish federal policy on international insurance matters to ensure they are consistent with state laws as well as advise the secretary on major domestic and international insurance issues.
Financial Services Capital Markets Subcommittee Chairman Paul Kanjorski, D-Pa., said he is confident the Obama administration would endorse his bill. "Only ostriches can now deny the need for establishing a federal insurance resource center and a basic federal insurance regulatory structure," said Kanjorski during a hearing on the subject.
States regulate lines such as property and casualty, life and reinsurance markets. But with the Obama administration set to release its plan to overhaul the regulatory system Wednesday, the federal government is likely to play a bigger role in overseeing the industry.
The plan is expected to have the Federal Reserve serve as a lead agency in monitoring against systemic risk to the entire financial system, i.e., the danger that the failure of one firm could trigger a market downfall such as Bear Stearns and American International Group did. The proposal is also expected to suggest a council of regulators who would serve as an adviser to the Fed.
"The broad principle is that a lack of oversight, a series of regulatory gaps allowed financial institutions -- not just banks, but nonbank institutions -- to engage in wild risk-taking that didn't simply imperil those institutions but imperiled the United States economy and had a profound recessionary effect on the world economy," President Obama said Tuesday in previewing the plan.
The debate over insurance has stymied policymakers because of divisions within the industry between large, multinational carriers that want creation of a federal regulator and those who want to protect a state-based system. The Kanjorski bill is viewed as the best compromise that could pass Congress as it has encountered less opposition than other insurance measures.
Kanjorski said the federal government should "actively regulate" lines that pose systemic risk to the nation's economy, such as bond insurers, mortgage insurers, and reinsurers. But he did not mention life insurance, an industry that has vigorously lobbied for a federal charter, arguing that its products are more national in scope, akin to those offered by mutual funds.
Financial Services Capital Markets Subcommittee ranking member Scott Garrett, R-N.J., said he was concerned about reports the Fed would serve as systemic-risk regulator because it has no experience on insurance issues. John Hill, testifying for the National Association of Mutual Insurance Companies, agreed. "You would have someone regulating insurance that has no real insurance background," Hill said.
Hill added the property-and-casualty market is different from other fields in the financial services sector because it has conservative portfolios that are liquid as well as low leverage ratios and strong solvency regulation from the states.