A blueprint for broad changes in the way financial services companies are regulated, unveiled by the Bush administration last week that includes support for optional federal charters for insurers and agents, almost certainly faces a “difficult and ongoing” debate, as the Treasury Department acknowledged in the report.
The Treasury plan calls for separate property-casualty and life charters, and also includes a proposal to create an interim federal insurance regulator within Treasury to coordinate with state regulatory officials on “pressing” insurance regulatory issues.
Specifically, such “pressing” matters would include international regulatory issues, such as reinsurance collateral. The interim federal regulator would also “serve as an advisor to the Secretary of Treasury on major domestic and international policy issues,” the draft proposal said.
Robert Hunter, director of insurance for the Consumer Federation of America, also criticized the proposal. He said it would have the effect of “gutting consumer protections. “The Treasury proposals for an OFC/deregulation regime as part of a ‘solution’ to the ills caused in mortgage lending lack of oversight is laughable.
“More deregulation as a solution to too much deregulation is classic Bush Administration logic akin to more tax cuts to solve the crisis in our national debt caused by excessive tax cutting,” Hunter said.
The Treasury proposal implied support for legislation introduced in both the House and Senate that would create OFC for both life and p-c.
But in a background briefing for media after the proposal was unveiled, a senior Treasury official said support for an OFC for insurance as part of a broad overhaul of financial services regulation “speaks for itself,” but does not constitute an endorsement of a particular bill.
In discussing the insurance component of the blueprint, Treasury Secretary Henry Paulson said, “Insurance presents a clear need for regulatory modernization.
“States have been the primary regulator for insurance for over 135 years. While a completely state-based regulatory system for insurance may have been appropriate at one time, insurance market changes have put increasing strains on the system,” he said.
“Much like other financial services, over time the business of providing insurance has moved to a more national focus even within the state-based regulatory structure,” the report says. “The inherent nature of a state-based regulatory system makes the process of developing national products cumbersome and more costly, directly impacting the competitiveness of U.S. insurers.”
Under the Treasury proposal, an OFC structure should provide for a system of federal chartering, licensing, regulation and supervision for insurers, reinsurers and insurance agents and brokers.
It adds that such a plan “would also provide that the current state-based regulation of insurance would continue for those not electing to be regulated at the national level.”
States would not have jurisdiction over those electing to be federally regulated, the plan proposes. However, the Treasury plan would leave insurers holding an OFC still subject to continued compliance with certain state laws–such as on premium taxes and guaranty funds.