Kanjorski Eyes Federal Role

Hunter, director of insurance at the Consumer Federation of America, Washington, said Congress should give the Federal Trade Commission a role in studying insurance and in helping states identify consumer protection issues with national ramifications, but he said states should continue to oversee consumer protection matters, including rate and form regulation.

Hunter said he is opposed to “optional federal charter” proposals that would permit insurers to choose between the traditional state regulation system and a new federal insurance regulatory system.

“Such a system cannot control systemic risk, has failed miserably in protecting banking consumers, and sets up pressures that can only lead to reduced consumer protections through regulatory arbitrage,” Hunter said.

Hunter does support creating a federal insurance office.

A federal insurance office should “be a repository of insurance expertise, data collection and analysis” and “authority to engage in international insurance issues,” and it should “help Congress and the administration sort through the tremendous complexities of this industry,” Hunter said.

The “office should not be granted vague and open-ended powers of preemption regarding state consumer protection laws or rules in areas that Congress has chosen not to explicitly preempt,” Hunter said.

Patricia Guinn, a managing director in the New York office of Towers Perrin Forster & Crosby Inc., said any federal regulatory scheme for insurers should address the weaknesses exposed by the problems at American International Group Inc., New York.

Federal regulation should mandate capital requirements for the entire company and should include enterprise stress testing, Guinn said.

The govrnment also should create a resolution authority that can handle conglomerates, “in coordination with state authorities,” Guinn said.

Guinn objected to the idea of creating a regulatory system for insurers that would be similar to the current bank regulatory system.

“Simply extending a regulatory regimen designed for banks would not work well for insurers,” Guinn testified. “The insurance industry has many distinctive features and market practices. The federal government should build a knowledge base about the insurance industry by collecting information and by leveraging the collective knowledge and expertise of state regulators and industry associations.”