The Bush administration is looking into the idea that the federal government should participate in regulation of the insurance industry.
The Internal Revenue Service and its parent, the U.S. Treasury Department, have published a notice in the Federal Register that asks for comments about U.S. regulation of financial institutions.
The notice, part of a broad Treasury Department review of the financial institution “regulatory structure,” includes questions about insurance along with questions about depository institutions, securities firms and the futures industry.
IRS questions in the insurance section include the following:
–What are the costs and benefits of state-based regulation of the insurance industry?
–What are the key federal interests for establishing a presence or greater involvement in insurance regulation? What regulatory structure would best achieve these goals/interests?
–Should the states continue to have a role (or the sole role) in insurance regulation? Insurance regulation is already somewhat bifurcated between retail and wholesale companies (e.g., surplus lines carriers). Does the current structure work? How could that structure be improved?
–States have taken an active role in some aspects of the insurance marketplace (e.g., workers’ compensation and residual markets for hard to place risks) for various policy reasons. Are these policy reasons still valid? Are these necessarily met through state (as opposed to federal) regulation?
David Nason, the Treasury Department’s assistant secretary for financial institutions, said during a speech in Washington that department officials are reviewing the U.S. financial institution regulatory structure on their own initiative.
“We are asking for thoughts on topics including: overlapping state and federal regulation, ways to improve market discipline and consumer protection, and the strengths and weaknesses of having multiple regulators and multiple federal charters for financial institutions,” Nason said, according to a written version of his remarks.
The Treasury Department began thinking about conducting the review before the beginning of the current period of “mortgage stress,” Nason said.
“The complexity of the mortgage market regulatory structure provides an interesting backdrop,” Nason said. “More people are now willing to consider and discuss regulatory structure.”
Nason compared the current review to the work that produced the Gramm-Leach-Bliley Financial Services Modernization Act of 1999.
The request for comment “shows the level of interest in Washington on the issue of insurance regulation and the need for a reformed, modernized regulatory structure,” ACLI spokesman Steve Brostoff says. “We are confident the IRS inquiry will demonstrate the need for a federal regulatory presence.”
ACLI believes a federal regulatory presence could be especially helpful in the market for retirement savings products, Brostoff says.