The Treasury Department’s financial services reform “blueprint” report is getting a mixed reaction from key members of Congress.
Treasury Secretary Henry Paulson unveiled the blueprint report here today before a packed audience in an ornate meeting room in the old Treasury Building.
In the report, department officials have declared their support for the general concept of creating an optional federal regulatory system for insurance.
Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, has criticized the recommendations the Treasury Department makes report.
“The plan goes too far in diminishing the role of the states,” Frank contends.
But Rep. Paul Kanjorski, D-Pa.., chairman of the committee’s Capital Markets Subcommittee, says he will support optional federal charter legislation.
“I have worked toward this goal for some time,” Kanjorski says in a statement.
The Capital Markets Subcommittee will hold a hearing later this month on insurance regulatory issues, and “the Treasury Department should have a seat at the table at this hearing,” Kanjorski says.
Kanjorski says he also would support a Treasury Department recommendation to create an Office of Insurance Oversight within the Treasury Department, to collect insurance industry information and advise the administration while Congress is working on setting up an OFC system.
Kanjorski notes that he himself already has called for the establishment of a federal insurance advisory entity.
“In today’s markets, the federal government needs in-house expertise on insurance policy,” Kanjorski says.
Sen. Charles Schumer, D-N.Y., a member of the Senate Banking Committee and the Senate Judiciary Committee, also is throwing his support behind the OFC concept.
“This is a national — it’s an even international financial market — and to have 50 different states each saying their own thing, that’s an idea from the 19th century, not from the 21st century,” Schumer said on CNBC.
The Treasury Department, meanwhile, is emphasizing that the blueprint report merely expresses support for the OFC concept and does not constitute an endorsement of any particular insurance or financial services bill.
There are four major insurance regulatory bills pending in Congress, including House and Senate OFC bills; a House bill that would put a single state in charge of supervising each insurer’s surplus lines and reinsurance activities; and a bill that would respond to growing differences between state producer licensing rules by creating a National Association of Registered Agents and Brokers.
A Treasury department official who briefed reporters after Paulson spoke called the blueprint report “aspirational” and acknowledged that changing the regulatory system could be a long process.
If the Treasury Department succeeds at establishing an OFC system, the system probably will be most attractive to large, multinational insurers, whether based inside or outside the United States, the official said.
The official echoed officials at the Financial Industry Regulatory Authority, Washington, by stating that consumers who buy similar products, such as mutual funds and annuities, should get the same kind of treatment.
Meanwhile, in the blueprint report itself, officials argue that state insurance regulators have more problems than they acknowledge with protecting consumers.
Areas of concern “include regulation focusing on insurer practices, independent of solvency concerns, which might be detrimental to policyholders, such as deceptive advertising, unfair policy terms, or discriminatory or unfair treatment,” officials write in the report.
Although states have set up guaranty funds to compensate policyholders of insolvent insurers, “these payments are not uniform and can vary by state, type of insurance and net worth of the policyholder,” officials write.
States warded off creation of a national producer licensing agency a few years ago by agreeing to licensing reciprocity and standardization efforts, but, since then, “states have failed to achieve uniformity in licensing standards,” officials write.