Feb. 2 is Groundhog Day, when Punxsutawney Phil gives his fans some insight into whether we will have 6 more weeks of winter by observing whether he sees his shadow.
Somewhat similarly, the recent flurry of letters in Washington, D.C. regarding the efficacy or downside of allowing insurers to have an optional federal charter would seemingly signal that what has become the annual debate over the issue in Washington is close at hand.
But, while the pipeline of insurance issues the new Obama administration will have to deal with over the next two years is bursting the seams, the likelihood of prompt action on issues specific to insurance seems less than the likelihood of delay.
That is because the Senate has tarried in confirming President Obama’s cabinet appointments, pushing down the road the appointment and confirmation of the lower level officials who will oversee the vast agenda generated by the worst economic and financial crisis in at least two decades.
Treasury Secretary Tim Geithner was confirmed on Jan. 26, setting the stage for appointment of the aides who will advise him at Treasury.
His confirmation was delayed, rightly, by Republicans so that they could make sure everyone knew that their investigation had turned up the fact that he hadn’t paid taxes on earnings from a previous stint in Washington.
But it pushed back the promised prompt action on critical decisions needed to provide insight into how aggressively the new administration will deal with an economic crisis that is seemingly growing daily in intensity.
For life insurers, the all-important decision will be how the 5 insurers who have applied for aid under the Treasury’s Capital Purchase Program will be treated.
Approval of CPP money for at least some of the insurers who applied to participate in the program would signal that Treasury has decided to no longer deal at arm’s length with politically-sensitive insurance issues.
But it is unlikely to be made for at least several weeks while the new officials familiarize themselves with the applications, and decide which policies of the former administration they will embrace, or whether to adopt radical new policies, such as nationalization of severely troubled financial entities, for example.
Approval of CPP aid to insurers would show that Treasury and the new administration are prepared to set up a process that might ultimately lead to hands-on regulation, either as a partner with existing regulators or as a direct regulator.
In any case, the likely first step for any direct federal role in regulating insurance will be legislation likely to be acted on sometime in the first 6 months of the year authorizing a federal regulator to oversee any financial institution deemed to present a potential systemic risk to its counterparties.
This was the criteria used in providing aid–albeit at a high price–to American International Group last September.
Also expected to be part of an early regulatory push is dealing with the conflicts inherent in having rating agencies who compete with each other evaluate the creditworthiness of instruments or balance sheets of companies who must pay a fee for the rating agencies to provide the service.
Also on the agenda for prompt action is federal regulation of mortgage brokers, no bit players in the U.S. housing crisis that has slowed the world economy to a crawl.
How Congress and the administration jointly decide who is to regulate mortgage brokers could provide a harbinger into who–for example, the Securities and Exchange and/or the Financial Industry Regulatory Authority–would regulate insurance agents and brokers when that issue comes up down the road.
It is also interesting that supporters of federal insurance regulation have decided that as a first step they will ask the Treasury Department to set up an Office of Insurance Information within Treasury that won’t have preemptive authority.
That request, being relayed to Geithner by Representatives Melissa Bean, D-Ill., and Ed Royce, R-Calif., primary sponsors in the past Congress of legislation creating an optional federal charter, represents a significant switch in tactics.
It means supporters within the insurance industry of a federal role in overseeing insurers have determined that political reality might force them to be overseen by an existing federal agency, for example, the Federal Reserve Board.
In any case, the only thing certain is that the shape of insurance regulation for the foreseeable future remains unclear, meaning that Punxsutawney Phil’s behavior today is unlikely to provide insight into whether state regulation of insurance will continue as now or whether some form of federal regulation will supplant it.