Reps. Melissa Bean, D-Ill., and Ed Royce, R-Calif., introduced legislation yesterday that would establish a “parallel national system of regulation and supervision” for the insurance industry, including financial guarantors in the muni market.
Citing the meltdown of insurance giant American International Group, as well as the broader financial crisis, Bean and Royce, both members of the House Financial Services Committee, said that their legislation would establish a robust federal regulator for insurance to act as an alternative to the “antiquated, non-uniform system of state insurance regulators.”
If the National Insurance Consumer Protection Act passes both houses of Congress and is signed into law, insurance companies would have the option of selecting a charter from the federal regulator — which would oversee insurance companies, their holding companies and any of their subsidiaries —rather than state regulators.
“The events of 2008 show us that insurance reg reform can no longer be postponed — it is needed now,” Bean said in a statement. “This bill will provide consumer protection and choice while eliminating barriers to industry competitiveness in the global market.”
Royce added: “Never before has the federal government been so invested in an industry it has no regulatory authority over. Leaving the business of insurance regulation solely to the various state insurance commissioners while the federal government provides taxpayer-funded assistance is simply irresponsible.”
Specifically, the bill would establish an office of national insurance within the Treasury Department that would be headed by a commissioner appointed by the president to a five-year term and subject to confirmation by the Senate.
It also would establish a “coordinating national council for financial regulators,” based on an idea floated by the President’s Working Group for Capital Markets, to collectively monitor issues related to the health and competitiveness of the financial services industry.
The council would be chaired by the Treasury secretary, and include the commissioner of national insurance as well as the heads of the Federal Reserve, Securities and Exchange Commission, Commodity Futures Trading Commission, Office of Thrift Supervision, Federal Deposit Insurance Corp., the Comptroller the Currency, and three state regulators appointed by the president.
The bill says that the national regulator must be in place no later than two years after enactment. Insurers that choose to be regulated at the federal level would contribute to a national guarantee fund to pay for the collpase of insurers, but they would also have to continue to pay into any state guarantee funds to prevent instability within those funds.
In a statement, the American Bankers Association and American Bankers Insurance Association welcomed the legislation, which they said would address “inefficiencies built into the current state-by-state regulatory structure” that “prevent many companies and agents from fully meeting consumers’ financial needs by allowing insurers, reinsurers and agents to obtain a federal charter to better serve consumers.”
Sean McCarthy, president and chief operating officer of Financial Security Assurance Inc. and chair of the Association of Financial Guaranty Insurers said in a statement: “While we have not had the opportunity to review the bill, the monolines support state and federal policies that will establish the best possible regulatory oversight of the financial services industry.”
But the National Association of Insurance Commissioners criticized the bill, arguing it is “aimed at stripping the states of insurance oversight authority and denying consumers of the time-tested protections that regulatory power provides.” Noting that the bill includes a provision that would allow self-regulatory organizations to carry out some of the federal regulator’s functions, NAIC president and New Hampshire Insurance Commissioner Roger Sevigny said it is akin to “handing the keys of supervision over to those being supervised.”
A slimmer version of the bill introduced last year would have created a federal insurance advisor within Treasury, but it was never voted on.