Obama Unveils White Paper

Other Paper Sections That Could Affect Insurance

The paper calls for adding an agency within the Treasury Department — the Office of National Insurance — that would advise the Treasury Department on various issues, include international trade and industry solvency and market conduct issues.

The ONI also would recommend which insurance companies represent a systemic risk to the system and should be overseen by the Federal Reserve Board, in addition to state regulators.

In a section on providing the tools the government needs to manage financial crises, the white paper says the Treasury Department would decide whether to “resolve a failing bank” in consultation with the presient, and with the approval of two-thirds of the members of the Federal Reserve and Federal Deposit Insurance Corp. boards.

The department would resolve companies that were predominantly broker-dealers after getting approval from the Federal Reserve Boad and two-thirds of the commissioners at the Securities and Exchange Commission.

“If the failing firm includes an insurance company, the Office of National Insurance within Treasury will provide consultation to the Federal Reserve and FDIC boards on insurance specific matters,” according to the white paper.

Still another section proposes creation of a Consumer Financial Protection Agency to oversee consumer financial products.

Reactions

Frank Keating, president of the American Council of Life Insurers, Washington, says Treasury’s proposals to enhance oversight of the insurance sector of the nation’s economy “will set us on the right path towards a modern, efficient and consumer-oriented regulatory system.

The ACLI “appreciates Treasury’s commitment to work towards modernization of insurance regulation based on the principles of national uniformity, efficiency, effective oversight of systemic risk and better international cooperation,” Keating says.

“The White Paper identifies a federal charter as one possible way to achieve those objectives. ACLI strongly supports an optional federal charter as the only way to achieve them,” Keating says.

Keating took note of a section that proposes the creation of an Office of National Insurance as a first step towards eventual establishment of a federal functional insurance regulator that would regulate federally chartered insurers.

“A federal functional insurance regulator would regulate federally-chartered insurers comprehensively, with an eye towards the close connection between product-design and solvency,” Keating says.

The Financial Services Roundtable, Washington, which represents large financial institutions, says he principles set forth in the administration proposal represent a strong recognition of the need to modernize insurance regulation.

“The Roundtable applauds the initial legislative proposal of an Office of National Insurance, but believes we must go farther,” the Roundtable says.

“The ideals of consolidated supervision, consistent consumer protection, uniform regulatory treatment, among others, necessitate the enactment of a comprehensive, uniform federal charter,” says Steve Bartlett, president of the Roundtable.

“State regulation has simply failed to keep pace with what, today, is a national and international business,” Barlett says. “Taxpayers and insurance consumers can no longer afford the price of this failure,” he said.

The National Association of Insurance and Financial Advisors, Falls Church, Va., has reacted to a section that calls for harmonizing regulation of broker-dealers and investment advisors, and to hold all broker dealers giving investment advice to a fiduciary standard of care.

“NAIFA is currently working to develop policy on how we will approach the issue,” a NAIFA representative says. “Central to our policy considerations is what is the definition of a fiduciary standard and how will that impact registered representatives who are contractually obligated to offer only a suite of products made available through their broker-dealer? Further, what new consumer protections will be gained by a new standard? As we have learned from recent weeks and months, there have been several instances where individuals who had a fiduciary obligation to their clients have been charged, and in some cases, found guilty of fraud. That begs the question, is it possible to legislate morality? These are some of the questions NAIFA will be asking as this debate moves forward.”

Cathy Weatherford, the president of NAVA Inc., Reston, Va., one of the groups that represents the annuity industry, says NAVA welcomes the president’s interest in high ethical standards and consumer protection. “However, we need to ensure we get effective regulation, not just more regulation,” Weatherford says in a statement. “Unless it’s effective, layering on more and more bureaucracy will do more harm than good.”

Pamela Banks, a senior policy counsel at Consumers Union, Yonkers, N.Y., is praising the white paper in a joint consumer group statement distributed by the Consumer Federation of America, Washington. “The days of allowing financial institutions to shop around for the weakest form of regulation are over,” Banks says in the joint statement.

Therese Vaughan, chief executive of the National Association of Insurance Commissioners, Kansas City, Mo., praises sections of the white paper that would preserve the role of states as regulators of insurance. “State regulation’s solvency system and consumer protections have served consumers well, as evidenced by the relative stability insurance market,” Vaughan says. “The [Obama] proposal appropriately focuses on the problems that need fixing, by addressing systemic risk and other regulatory gaps. We are pleased that a council of regulators with functional expertise is included in the proposal, but urge inclusion of state insurance regulators to offer expertise and information on the insurance markets.”

Allison Bell contributed information to this report.