Shifting to federal regulation of insurance would speed up efforts to address industry problems, according to a consulting firm led by a federal bank regulation veteran.
Replacing the current state-based insurance regulatory system with a federal system also would reduce the cost of regulating the insurance industry, analysts at Promontory Financial Group L.L.C., Washington, write in a paper commissioned by the American Council of Life Insurers, Washington; the American Insurance Association Washington; and the Financial Services Roundtable, Washington.
Creating a national insurance regulatory office “would give Congress the leverage it presently lacks to force action to address new problems,” the analysts write.
Eugene Ludwig, the founder and chief executive of Promontory, is a former comptroller of the currency.
As the head of the Office of the Comptroller of the Currency during the Clinton administration, he helped regulate 1,600 national banks.
In the paper released today, Promontory set out to analyze the structure, cost and operations of a federal insurance regulatory office that would be similar to the proposed Office of National Insurance.
Lawmakers included ONI provisions in S.40 and H.R. 4200, bills introduced in the last Congress.
Promontory approached the ONI project “as an analyst, not an advocate,” Ludwig said at a press conference held to unveil the paper. “The objective was to assess the nuts-and-bolts of creating a new federal regulatory agency:”
Ultimately, Ludwig said, “it will be up to Congress and the Obama administration to determine the overall structure of financial services regulation and how insurance fits into that structure.”
A federal insurance office would likely employ 2,390 full-time staff members and have an annual budget of $465 million, Promontory analysts estimate.
This would make the insurance office a “relatively small agency” compared with the OCC, the U.S. Securities and Exchange Commission and the Federal Deposit Insurance Corp., the analysts write.
“Moreover, these figures do not take into account economies of scale that would occur if the largest insurers come under federal oversight, which would reduce costs [of regulation]” the analysts write.
Because the federal office would be funded by user fees, it would impose no new burden on the federal government and taxpayers, the analysts write.
The analysts write that a national insurance regulatory office would be able to attract and retain top insurance regulation specialists, such as capital markets experts, because of the professional interaction and development opportunities provided by a national regulator.
“Because ONI would be a national regulator, the staff would be better positioned than state regulators to apply industry-wide solutions to emerging issues,” the Promontory analysts write.
Oversight by Congress would prevent deterioration in market conduct standards, and competition between consumer-oriented legislators and regulators on the state and federal levels could raise the bar for best practices in market conduct regulation, leading to a “race to the top” as opposed to a feared “race to the bottom,” the analysts write.
On the international front, an ONI would improve the way the United States relates to the international regulatory community, the analysts write.
As a national regulator, the ONI would carry the requisite weight and authority to negotiate and collaborate in international forums as a peer to regulators from other jurisdictions, the analysts write.
ACLI President Frank Keating has issued a statement welcoming the release of the Promontory paper.
“It shows a proposed national insurance oversight agency would offer a streamlined and efficient alternative to the current state regulatory system without imposing material costs on taxpayers or sacrificing consumer protections,” Keating says in the statement.