If congressional reaction is any indication, change in insurance oversight in the wake of the new Treasury Department blueprint for regulatory reform that was unveiled last week is likely to be evolutionary.
As a Treasury Department official who played a key role in coordinating the drafting of the report said in a background briefing for reporters following release of the report, the document is “aspirational.”
Moreover, the official, who could not be identified under rules of the briefing, said the blueprint should not be seen as endorsing a particular piece of legislation.
The report called for creating an interim federal insurance regulator within Treasury to coordinate with the state regulatory officials on “pressing” insurance regulatory issues, an acknowledgment that the debate in Congress over insurance regulatory reform is likely to be “difficult and ongoing.”
And, while sponsors of legislation in both the House and Senate that would create an optional federal charter for insurers lauded the authors of the Treasury blueprint for their support of an OFC, the gatekeepers for congressional action responded far more cautiously.
Indeed, both Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, and Rep. Barney Frank, D-Mass., chairman of the House Financial Services committee, declined to embrace the Treasury’s call for an OFC, especially for property-casualty insurers.
For example, Dodd said he would support legislation creating an optional federal charter for life insurers, but expressed reservations about supporting similar regulatory oversight for p-c insurers.
“I can make a strong case to you [for an optional federal charter] with life insurance,” Dodd said, but on property and casualty [insurance], “it’s another matter.
“There’s some very legitimate issues why state regulation makes more sense in the property/casualty area and why federal regulatory scheme makes more in the life area,” Dodd said.
However, he added that the entire area of regulatory reform in insurance is important to the Committee. “That’s a matter we’re already talking about up here. I have a number of colleagues–[Sen.] Tim Johnson, [D-S.D.] cares deeply about this issue. Others do.
“We’re going to try, in this whole idea of the optional federal charter; we’re looking at that, will probably hold some hearings onit,” he added.
Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said “the plan goes too far in diminishing the role of the states” that implied he would not support a regulatory scheme for insurance that does not include a key role for states.
The first hearing on the Treasury blueprint is likely to be held by the Capital Markets Subcommittee of the House Financial Services Committee April 16, according to industry sources.
Rep. Paul Kanjorski, D-Pa., chairman of the subcommittee, said he hoped to “give the Treasury Department a seat at the table” at that hearing.
In his statement, Kanjorski raised “strong concerns” about revising credit union oversight, highlighted the importance of pursuing insurance regulatory reform, and emphasized the need to better oversee mortgage brokers and originators.
He said he would support an OFC and creation of an interim federal insurance regulator in Treasury while longer-term reforms are debated.
“As an intermediate step toward the establishment of a federal insurance charter and regulator, Treasury suggests creating an Office of Insurance Oversight to collect information about the industry and advise the Administration about insurance policy,” Kanjorski said.
“I have also previously called for the establishment of such an entity,” he said. “In today’s markets, the federal government needs in-house expertise on insurance policy.”
Sen. Charles Schumer, D-N.Y., a member of both the Senate Banking and Judiciary Committees, also said he would support an OFC.
“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.
Johnson and John Sununu, R-N.H. sponsors of the National Insurance Act of 2007, said they were “glad to see” that the proposal from the Treasury Department includes a discussion of insurance regulation and recommends the creation of an Optional Federal Charter.
“An OFC will modernize the current inefficient insurance regulatory structure, while enhancing U.S. competitiveness in the global financial services economy, and I commend Secretary Paulson and his colleagues for taking a long-overdue step in this direction,” Sununu said.
Johnson added that, “There is increasingly widespread consensus that the status quo for insurance regulation is unacceptable.”
Rep. Melissa Bean, D-Ill., and Rep. Ed Royce, R-Calif., sponsors of companion legislation in the House, also noted the blueprint’s call for federal regulation of insurance.
Bean said, “Our nation’s economic leadership in the world hinges upon its global leadership in capital markets.”
She added that the Treasury report follows the Schumer/Bloomberg report and a report by the U.S. Chamber’s bipartisan commission, all of which make the compelling case to update our insurance regulatory environment
Royce said Secretary of the Treasury Henry Paulson “believes, as many do, that the creation of an optional federal charter should be at the forefront of any initiative intended to improve the oversight and competitiveness of the financial services industry in the United States.”