State insurance legislators and regulators as well as consumer representatives reacted angrily to comments made by Treasury Secretary Henry Paulson attacking state insurance regulation. (See story above.)
The problems were on the investment side of AIG and not with the insurance subsidiaries, George Keiser, R-Bismarck, a state legislator in North Dakota and secretary of the National Conference of Insurance Legislators, Troy, N.Y., said. He spoke during the fall meeting of the National Association of Insurance Commissioners.
Birny Birnbaum, a funded consumer representative speaking at the NAIC meeting, said federal regulators are to blame for ineffective regulation. “Secretary Paulson yesterday claimed that AIG was a classic example of the need for a federal solution. To be polite, Paulson’s claims are Orwellian in nature,” Birnbaum said.
He noted the “aggressive attempts” to pre-empt state insurance regulation and said the political use of AIG is “even more shocking.”
Birnbaum called on the NAIC to “quickly issue a resolution opposing the Paulson plan” noting that the Paulson plan is “flawed and does nothing to help consumers.”
“The U.S. is the best insurance market worldwide and offers the best protection for consumers worldwide,” he continued. The “problems surfacing have been at the federal level of regulation,” Keiser said.
He noted the seriousness of the current financial crisis, but said the grass roots response really best served consumers. For instance, he said that within 24 hours of the start of the AIG crisis, locally based state regulators were explaining to consumers what the crisis meant to them and that the insurance subsidiaries are sound. “We didn’t have to wait for a federal beauracracy.”
NAIC President and Kansas Insurance Commissioner Sandy Praeger had earlier responded to the AIG situation, affirming the strength of state regulation.
In the halls, much of the talk was on how state regulation had fared.
Mila Kofman, Maine Director of Insurance, said the problems were focused on the AIG holding company and “the whole mess was created under federal watch. Because of effective state-based insurance regulation, the insurance subsidiaries of AIG are financially solvent and not in trouble.”
“The approach from Secretary Paulson to deregulate insurance through an optional federal charter and an Office of Insurance Information is exactly what we do not want and will not protect consumers.” Kofman said these two approaches do not have enforcement standards that could ensure effective regulation.