Two months into his new job as New York Insurance Superintendent, Eric Dinallo came to National Underwriter’s office in Hoboken, N.J., to speak on a broad range of topics, but particularly to emphasize the need to update insurance regulation as part of a broader effort to keep the U.S. financial services markets globally competitive.
A joint report released on Jan. 22, 2007, by U.S. Senator Charles Schumer and New York City Mayor Michael Bloomberg warned that New York could lose its status as a premier global financial market without a major shift in public policy to address issues such as stringent regulation and high litigation costs. The report was backed by New York Governor Eliot Spitzer.
That warning was reinforced on June 12, 2007, in a report issued by MasterCard Worldwide, Purchase, N.Y., which listed London as the top city, surpassing New York, in a 50-city study on how cities affect the global economy.
In his conversation with NU, Dinallo left no doubt that change is needed to update financial services to reflect both domestic realities and global changes currently underway. His focus reflects the priority Spitzer places on the issue. Spitzer appointed Dinallo to a financial services commission charged with delivering a report by June 1, 2008.
The panel, the New York State Commission to Modernize the Regulation of Financial Services, is charged with reviewing all “current financial services statutes, regulations, rules and policies, and with proposing legislative and other necessary changes.”
Dinallo says the commission will be issuing the product long before the June 1 deadline. “The governor will not be happy to let a year go by and just have a report plunked down in front of him.” As part of the effort, the commission will take a “ground-up approach,” he says.
When asked if modernization would include combining the New York insurance and banking departments, Dinallo said that was not the intent, but after a review of changes needed, it could be an outcome. The reason, he explained, is that the current system is one of silos, reflecting the Glass Steagall Act, which was replaced by the Graham Leach Bliley Act of 1999. The current system of silos is antiquated, Dinallo added.
Modernization would benefit life insurers because they are asset managers and many products now have components that reflect insurance and securities features, he explained.
Even though banks and securities are under federal oversight, Dinallo said there are areas such as state registration and licensing that can be “better synthesized.”
With regard to the call of some in the industry to create an optional federal charter, Dinallo said he needs to give the issue further study, but he added, “I am not in favor of the optional part of optional federal charter.”
The reason, he explained, is that it will create “regulatory arbitrage” where “you get into a situation where the regulated can play regulators off of each other, and that is not a good place to be.”
There needs to be a serious examination of which is the right regulator, said Dinallo, who added that state regulators’ handling of the World Trade Center and Katrina catastrophes demonstrate the capabilities of state regulation. He said consumers should be made aware of how state regulation has served them.
When asked about the NAIC’s accreditation program, Dinallo said he thinks it is “appropriate” and can be a valuable tool for states.