Officials at the Treasury Department are not yet sure how they want the insurance regulatory system to change, but they believe there is wide agreement about the need for change.
David Nason, Treasury’s deputy assistant for financial institutions, talked about the department’s concerns about insurance regulation in Baltimore, at a seminar sponsored by the National Organization of Life and Health Insurance Guaranty Associations, Herndon, Va.
“Treasury is spending more time studying insurance regulation and the insurance marketplace than it has in the past,” Nason said. “Some of this is required – Congress gave us the responsibility to implement and manage the Terrorism Risk Insurance Program, and some of it is simply because we at Treasury recognize that insurance plays a critical and growing role in our financial marketplace.”
The Treasury has not decided to endorse the optional federal charter approach to changing insurance regulation, which would let insurers choose between state and federal regulation, or the “federal tools” approach outlined in the State Modernization and Regulatory Transparency Act in the House, which would press states to adopt more uniform laws and regulations.
“While Treasury has not made a decision as to which approach would be most appropriate, everyone seems to agree that a thorough review is in order,” Nason said. “We are in the process of that evaluation now.”
Nason said Treasury is especially concerned about the effects of variations in state regulatory regimes, and of provisions such as price controls, on efficiency, and about the effects of the 50-state regulatory system on U.S. insurers operating overseas and on international insurers operating in the United States.
Provisions such as prices controls, for example, can reduce competition and lead to over-reliance on state-run insurers of last resort, Nason said.
At the international level, insurers trying to enter the U.S. market face significant hurdles in trying to cooperate with more than 50 different regulatory regimes, and other countries have raised that issue in trade talks, Nason said.
Nason also talked about efforts by the National Association of Insurance Commissioners, Kansas City, Mo., to improve insurance regulation.
“We must acknowledge some of the good work the NAIC is doing to attempt to address these issues,” Nason said.
The NAIC uses memoranda of understanding and regulatory cooperation with international insurance regulators to address international concerns, and it coordinates closely with Office of the U.S. Trade Representative in international financial services negotiations, Nason said.
The NAIC also participates in Treasury’s financial markets regulatory dialogues with trading partners such as China, Japan and the European Union, Nason said.