Rep. Barney Frank, D-Mass., Thursday voiced support for an optional federal charter, especially for life insurance.
Also this week, Rep. Melissa Bean, D-Ill., and Rep. Ed Royce, R-Calif., announced that they continue to retool their legislation that would create an optional federal charter for all insurers and said they hope to have their bill introduced in the House within weeks.
In separate comments at a hearing on the latest federal bailout of American International Group before the Senate Banking Committee Thursday, Sen. Tim Johnson, D-S.D., and Don Kohn, vice chairman of the Federal Reserve Board, also said an optional federal charter should be explored.
At the same meeting where Bean further outlined what would be included in her bill, Rep. Spencer Bachus, R-Ala., was more vague when asked for his view on an OFC, saying he would support a more incremental approach to insurance regulatory reform.
At the same time, Bachus indicated a measure of support for legislation creating an Office of Insurance Information within the Treasury, a bill proposed last year by Rep. Paul Kanjorski, D-Pa., chairman of the Capital Markets Subcommittee of the House FSC. The bill passed the House last September.
Frank, chairman of the Financial Services Committee, said in his comments it is “overwhelmingly likely” House Democrats will move to create an OFC for life insurers. Reiterating comments he has made in the past, Frank said one of the factors favoring the move has been requests from European regulators and insurers for a more simplified approach to insurance regulation in the U.S.
“Because of our European allies’ concerns, we will have to think about doing an optional federal charter for life insurance,” he said.
Bean said the name of the bill she proposes will be the National Insurance Modernization Act. Issues. Decisions as to what will be in the bill that still must be made include consumer access, uniformity and whether a federal charter would be optional or mandatory for insurers deemed systemically significant, she said. She made her comments at the annual Insurance Reform Summit presented by Networks Financial Institute at Indiana State University.
The bill will include provisions requiring a physical presence for the Office of Insurance Information that would regulate national insurers in each state, she said. It also would create a systemic-risk regulator with the authority to oversee insurance firms defined as “systemically important.” The scope of the proposed systemic risk regulator’s authority is still under discussion as well as the definition of the term “systemic risk,” Bean said.
At a systemic risk hearing before the Capital Markets Subcommittee Thursday, Rep. Ed Royce, R-Calif., who plans to cosponsor an OFC bill with Bean, reiterated the need for such legislation. He noted that earlier this week, Federal Reserve Chairman Ben Bernanke had expressed his frustration with the ability of American Insurance Group Inc. to “exploit a huge gap in the regulatory system.” That gap “must be filled by a world-class federal regulator for insurance,” Royce said.
“The various state insurance regulators simply do not have the ability to oversee massive global financial firms like AIG,” he said. “This void has gone unfilled for too long, and the problems that have resulted because of this gap are many.”
Royce added that taxpayers “have a vested interest in the ability of this Congress to establish a world-class regulatory alternative to the fragmented 50 state system overseeing the insurance market.”
And at the Senate Banking Committee hearing where federal and state regulators came under fire for their supervision of AIG, Sen. Johnson said, “Our current, outdated, state-by-state regulatory system is ill-equipped to deal with a 21st century insurance company.”