A top Treasury Department official made clear that establishing an Office of Insurance Information within the Treasury Department is merely an interim step, and that the Bush administration’s “intermediate” priority remains creating a federal charter option for insurers.
David Nason, assistant secretary for financial institutions in the Treasury Department, made his comments at an all-day seminar on the future of insurance regulation sponsored by the American Enterprise Institute, Washington.
In his comments, Mr. Nason said the first priority of the new office would be dealing with global issues, especially those dealing with the European Union’s new Solvency-II, which is seen as putting U.S. insurers at a disadvantage under current conditions in competing globally, as well as on cross-border collateral requirements. He said the inability of state regulators to act uniformly has also created the potential for U.S. insurers to be at a disadvantage in competing internationally.
In answering a question, Mr. Nason said the goal of the new OII would not be to “supplant the Office of the U.S. Trade Representative or the Commerce Department.”
“We want it to play the same role it plays in the securities, commodities and banking area,” he said.
“In insurance, we don’t have someone who can give us an opinion as to whether a different foreign regulatory scheme is equivalent to ours,” he said.
And, in answering a question as to why health insurance was not included in the areas that would be covered by an optional federal charter, Mr. Nason said that, “To insert health insurance into the OFC debate seemed to be at odds with where the reality was.”
He confided that Treasury officials spent “a fair long time discussing it. That structure is nimble enough to deal with health insurance.” But, he said, the conclusion was that in the “near and medium term, we wanted to deal with issues we could get done quickly.”
And, he explained that “The only pieces of legislation that deal with the OFC have long since taken health insurance off the table because of the differences associated with that business, the complexities over how it is regulated, and even the committees that have jurisdiction over it. It was jettisoned in [the deliberations over] the legislation over all those difficulties.”
Moreover, he said, “As far as the debate over the OFC is pushed, the issue is not over whether it is going to be expanded, but the issue is whether or not it is going to stay with p-c and life, or whether it is going to be moved to just life.”
He conceded that, “The industry is fracturing a little bit. We think it is important that it should stay where it is, p-c and life, but we recognize that there are tensions and differences associated with how those businesses are regulated.”
Mr. Nason spoke just 30 minutes before the Capital Markets Subcommittee approved by voice vote and sent to the House floor, H.R. 5840, a bill that would create an Office of Insurance Information inside the U.S. Treasury Department.
Mr. Nason said he was “encouraged” by the panel’s vote, and added that, given the few legislative days left in this Congress, it would be acceptable if the Senate didn’t act on the legislation and send it to a new president for signature in the next Congress.
He said we are “very encouraged that Congress is taking up the idea.” Mr. Nason added that he has “made it plain that we need the authority,” and that, in turn, Congress seems “very supportive of the idea. It seems to have general support.”
In answering a question, Mr. Nason dealt for the first time with the concerns over whether the OII would stand in the way of an OFC. That is an issue that has been raised privately by officials of life insurance companies in the debate by members of the American Council of Life Insurers over whether the trade group should support the OII bill because of that concern.”
“We recognize the OII is a limited vehicle,” Mr. Nason said. “The authorities we think it should have should be quite limited. It should not be viewed as starting creation of an OFC mechanism within Treasury, or dealing with the broader issues that we talked about in an OFC.”
He said that, “after doing the calculus, we determined it is a risk worth taking. You want to focus on things that are achievable in the short run. I don’t think an OFC is achievable in the very short run.”
But, “in the intermediate term it is something that we can think about. This OII is something that can be achieved in the short run; it is not nearly as controversial from a political perspective. Dealing with some of the issues at the margin was better and a risk worth taking. We tried to make it very clear that we view them as both necessary and not supplanting each other.”
Earlier, in his planned remarks, he focused on the OFC. “In the view of Treasury officials, the OFC offers the best opportunity to establish a modern and comprehensive system of insurance regulation which will provide insurance market participants a choice of being regulated at either the federal or state level.”
He said it would be “broadly consistent with banking regulation, specifically dealing with charter, licensing, regulation and supervision for insurers and producers.” He said that as Treasury envisions an OFC, principles embodied in legislation currently introduced in both the House and the Senate, ‘the state-based system would continue for those deciding not to operate at the national level.”
Moreover, he said, “Some continued compliance with other state laws, such as state tax laws, compulsory coverage for workers compensation, as well as compliance with state-mandated residential risk mechanisms and guaranty funds,” would be required of federally chartered insurers. He also called for an end to price controls.
Asked what is in an OFC bill for the insurance agent or broker, Mr. Nason said, “I can’t see how this would be detrimental to the insurance agent and broker.”
He said the insurance agent and broker “would still be able to sell the product with which it has a license from or a relationship with a company to sell.”
He also said that it may streamline the licensing obligations of the insurance agent and broker.
“I have often heard that there is a lot of concern about whether this would be detrimental to the agent. I have yet to see a compelling case as to how that would be.”