A life insurance industry representative and an Illinois insurance director squared off on the need for federal regulation of insurance.
Frank Keating, president of the American Council of Life Insurers, Washington, today argued that life insurers need to be federally regulated because they constitute a systemic risk to the financial system.
Michael McRaith, Illinois director of insurance, countered that, if there are federal initiatives, such as initiatives for system risk, then there should be a “state/federal partnership,” rather than a purely federally run system.
McRaith said state insurance regulators support federal initiatives to identify and manage national and global systemic risk.
But, McRaith said, any such partnership must include a “primary role for states in insurance regulation,” with a systemic regulator such as the Federal Reserve Board “integrating but not displacing” state-based regulation of insurance.”
“Consumer access to state-based, local regulatory officials will remain the bulwark of consumer protection,” McRaith added.
McRaith also talked about the optional federal charter approach, which life insurers have proposed in the past as a potential vehicle for establishing a federal insurance regulatory system.
An OFC system would let insurers choose between state and federal regulation.
An OFC approach would lead to a system in which the insurer would choose the regulator with the “lightest touch,” McRaith said.
McRaith said an ability to choose between a state and federal regulator would lead to “regulatory arbitrage” and failures.