The president of the American Council of Life Insurance is disagreeing with a consumer group’s assertion that creating an optional federal charter would “federally deregulate insurance.”
The group, Consumer Watchdog, Sacramento, Calif., has sent Treasury Secretary Timothy Geithner a letter in an effort to persuade not to use creation of an Office of Insurance Information within the Treasury Department as a “stalking horse” for setting up an optional federal charter system.
Advocates of the OFC approach want to give insurers the option of choosing between a traditional state charter and a new federal charter. Holders of the federal charter would come under the jurisdiction of a new federal regulatory agency.
Consumer Watchdog sent its letter in reaction to a letter by Reps. Melissa Bean, D-Ill., and Ed Royce, R-Calif. Bean and Royce asked Jan. 23 that the Treasury Department unilaterally establish an OII as an “interim step” toward creating some form of federal insurance regulation.
The federal government must develop an insurance regulatory presence with the capacity to monitor the insurance marketplace and identify risks to consumers, the industry and the broader financial system before they reach the “crisis stage,” ACLI President Frank Keating says in a response to the letter.
“Life insurance is a $5 trillion industry which affects the lives of almost all Americans and closely interacts with banks and securities firms,” Keating says. “Consumers cannot afford a regulatory structure in which federal financial regulators are effectively walled-off from overseeing the insurance marketplace.”
Establishing a national insurance regulatory option “would close this gap,” Keating says.
In addition to regulating those insurers that are federally chartered, a national insurance regulatory office would create a window on the broader insurance market and help federal regulators spot trends, Keating says.
Consumer Watchdog argues in its letter that Bean, Royce and five other House members who signed their letter “are not seeking greater federal regulation. Their purpose is to allow insurers to escape meaningful oversight altogether. … Consumers will pay the price the price if state insurance regulation is preempted.”
Keating defended the concept of federal regulation.
“An optional system is not a euphemism for ‘no regulation’,” Keating says.
To the contrary, in the wake of the financial crisis, “the marketplace will not have confidence in an insurance company that comes under weak financial and market conduct standards,” Keating says. “The rhetoric about ‘regulatory arbitrage’ is overblown. An optional system would preserve state regulation for insurance companies that would be better served by it, perhaps smaller or regional companies. The key is to maintain high standards of financial solvency and marketplace conduct at both the state and federal levels.”