BROOKLYN, N.Y. — Therese Vaughan, chief executive of the National Association of Insurance Commissioners, said she expects to see more federal involvement in insurance oversight.
“I think it is very likely we will have some kind of systemic risk regulation that incorporates the life sector,” Vaughan said here Monday at an insurance conference organized by Standard & Poor’s, New York.
But Vaughan, a former Iowa insurance commissioner, questioned suggestions that the systemic regulator would be the Federal Deposit Insurance Corp. Sen. Susan Collins, R-Maine, has introduced a bill that would create a systemic risk council that would include a number of different voices, not just the FDIC, Vaughan reported.
“I personally am a huge fan of that approach,” Vaughan said, arguing that a bigger, broader entity could do a better job of looking for systemic risk.
Vaughan said she would like to see the NAIC, Kansas City, Mo., be part of the systemic risk effort, and to see the effort recognize the diversity of the financial services sector.
“Insurance is different from banking and different from securities,” she said.
It seems unlikely that the failure of any one U.S. life insurer could hurt the financial system, but the collapse of American International Group Inc., New York, shows that a life insurer could be part of an entity big enough to raise questions about systemic risk, Vaughan said.
Patrick Baird, chairman of the American Council of Life Insurers, Washington, said he does not believe any one life insurer is big enough that its failure would cause the sorts of problems that the collapse of Lehman Brothers Holding Inc., New York, caused in September 2008.
But intense media coverage of one large insurance company failure could undermine confidence in the entire life industry, and that could destabilize the entire industry, Baird warned.
The ACLI has been a strong supporter of efforts to give insurers the option of coming under the jurisdiction of a new federal insurance regulatory, or of continuing to operate under the jurisdiction of the traditional state-based insurance regulatory system.
Baird said the insurance industry needs more of a presence in Washington simply so the federal government is thinking about it. He talked about his role as one of the insurance industry representatives who visited Treasury Department officials in late 2008, to talk about the effects of the financial crisis on the industry.
“We felt we were nearly as systemic as the banks,” Baird said. “Not only did it turn out that we were not on Treasury’s radar screen, they really didn’t know anything about the industry.”
Over the next 2 years, the ACLI has to work with Congress, Treasury, the NAIC and the Financial Accounting Standards Board, Norwalk, Conn., to improve the state of insurance regulation, Baird said.
“This industry has to survive this, because this industry provides financial security for 75 million American families,” Baird said. “
During an earlier S&P conference session, property-casualty industry executives expressed uncertainty about whether Congress would pass an “optional federal charter” bill, but they all said they support the OFC concept.
Constantine Iordanou, president of Arch Capital Group Ltd., Hamilton, Bermuda, said he has been a proponent of the OFC concept since he “was in diapers.” Evan Greenberg, chairman of ACE Ltd., Zurich, called the current state-based regulatory system an anachronism.
But “be careful what you wish for,” Greenberg said. “Re-regulation is being approached with a punitive undertone, and hardly would we want to be caught up with that.”