By CYRIL TUOHY, managing editor of Risk & Insurance®
There's good news, great news actually, in the Obama administration's new plan to create an Office of National Insurance (ONI) within the Dept. of the Treasury. It means that finally, there will be someone in the federal government who has a clue as to how insurance works.
An outstanding achievement of the insurance industry has been its ability to protect itself from government intrusion. It's made sure that Congress doesn't have a clue about how the industry functions. The industry, fractured like none other, likes it that way.
It ensures that any legislation worthy of any meaningful change withers in the footnotes of a regulatory subcommittee. When a proposal with any teeth actually rises from the regulatory morass, like the proposal floated 18 months ago by the former Bush administration to tax captives, it's pulled from the agenda on the grounds that it was ill conceived.
An insurance czar is exactly what we need: Someone who can see through industry bluster and help Congress focus on the big picture, which is properly regulated, tightly controlled and well-capitalized national insurance companies.
The administration's not talking about "socializing," an industry, one with $5.7 trillion in assets and one that employs 2.3 million people, a third of all jobs in the financial services sector.
Obama's hardly talking about all that much in the way of regulation and though the administration hints at the creation of an Option Federal Charter (OFC), a model rabidly opposed by some, there appears to be plenty of room for compromise.
All this administration's asking for is to appoint someone within Treasury who really knows what they're talking about. That's what I call "public service."
Six points stand out in the administration's marching orders for the creation of an ONI: effective systemic risk regulation for insurers, matching capital allocation and liabilities for insurance companies, consistent consumer protections for insurance products and services, more uniformity through strong capital standards, broadening the regulation of affiliate insurance companies and satisfying international frameworks to make U.S. insurers more competitive internationally.
"The United States is the only country in the International Association of Insurance Supervisors (IAIS whose membership includes insurance regulators and supervisors of over 190 jurisdictions) that is not represented by a federal insurance regulatory entity able to speak with one voice," according to the report, titled "Financial Regulatory Reform: A New Foundation".
That's why it's about time the country designate one voice to represent the industry, which is exactly what an ONI would do.
The ONI would be on the federal level what state insurance commissioners are to the industry on a state level. State commissioners generally do a good job of representing the interests of the industry on a state-by-state basis, so why fear a federal oversight body?
After all, it was the property/casualty insurers, overseen by the states and their respective insurance regulators, which came out looking pretty good in the wake of the 21st century's Great Recession. A federal oversight insurance industry body likely would have prevented the catastrophes that became of the monoline carriers and AIG.
For a few million dollars a year, it sure beats the billion-dollar bailouts that have come to characterize the rescue of some big-name insurance carriers. If you ask me, an ONI is money well-spent. Policyholders are better off subsidizing a responsible regulator on the "front end," than they are paying for avoidable mistakes on the "back end."
(Read the other side of the Office of National Insurance issue as argued by Senior Editor Dan Reynolds.)
August 1, 2009
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