A Treasury official declined to endorse any of the various proposals for federal involvement in insurance regulation on July 18 but said the problems facing the industry would likely require some congressional action.
In testimony before the Senate Banking committee, Treasury Under Secretary for Domestic Finance Randal Quarles said that the Treasury has been “monitoring the developments of the various approaches to modernizing insurance regulation” including those being proposed by the National Association of Insurance Commissioners, Kansas City, Mo., the proposed establishment of federal standards to be enforced by states, and the optional federal charter.
“While we are still evaluating what approach we believe to be the most appropriate, what is clear is that each of them should be assessed,” in light of the issues facing the industry.
Like other financial services, Secretary Quarles noted that insurance plays an important role in the U.S. economy due to the enormous amount of assets managed by the insurance industry and the potential for “ripple effects” of conditions in the insurance industry being felt across the general economy.
“Unlike banking and securities sectors,” he added, “insurance is solely regulated at the state level, and while this multiplicity of regulators can provide certain benefits in the form of local expertise and control, it does raise a number of issues that deserve further consideration.”
Among the main problems, the secretary said, are the potential inefficiencies within the current state-based regulatory scheme, especially through price and form controls, the system’s inability to recognize and adapt to the evolving and growing needs of the industry, and international issues.
On the international front, Quarles noted that the European Union has been working to establish one insurance regulatory regime for all of its members and that the fractured U.S. regulatory scheme is generally among the top trade issues in discussions with EU representatives.