WASHINGTON–Life insurance industry trade groups and a state regulator all voiced strong opposition in testimony before Congress today to the Obama administration’s proposal that a separate federal agency be created to oversee consumer protection of financial products.
The testimony before the House Financial Services Committee dealt with suggestions by some officials of the Obama administration that a new federal Consumer Financial Products Protection Agency be given oversight over variable annuities and perhaps other life products.
The hearing was significant because an Obama administration white paper outlining its proposed changes is silent on whether oversight of insurance products should be authorized for the new agency.
Under provisions outlined in the white paper, the new agency would assume the authority now held by a unit of the Federal Reserve Board.
Industry groups that testified included the American Council of Life Insurers, the National Association of Insurance and Financial Advisors and NAVA. In addition, representatives of the Insurance Marketplace Standards Association said in written testimony submitted to the panel that they opposed allowing the proposed new agency to have oversight over life products.
Even representatives of consumer advocacy groups expressed no interest in having the proposed new agency oversee life products. Travis Plunkett, legislative director of the Consumer Federation of America, and Edmund Mierzwinski, consumer program director of the U.S. Public Interest Research Group, said that they would recommend that “strong consideration be given to providing the proposed agency with jurisdiction over insurance products that are central or ancillary to credit transactions, such as credit, title, mortgage and forced place insurance.”
But they made no mention of life products in their testimony.
Testifying for the ACLI, Gary Hughes, executive vice president and general counsel, said, “We do not believe that the interests of life insurance consumers would be well served by subjecting life insurance products to the additional jurisdiction of the CFPA.”
He observed that “unlike most other financial products, the regulation of life insurance products has a direct and fundamental relationship to issuer solvency and therefore cannot prudently be separated from those other aspects of insurance regulation that in the aggregate constitute solvency oversight.”
Hughes argued that life insurance product regulation requires a thorough understanding of the basic workings of the life insurance business. “That understanding does not presently exist at the federal level and would not exist within the CFPA should it be established,” he insisted.
Cliff Wilson, president of NAIFA, said that “it is dangerous to separate insurance product regulation from solvency regulation, because the pricing and cost of products is so interrelated to the financial health of the insurer offering the product.”
Moreover, he said, “to the extent the federal government assumes insurance product regulatory authority, it should be part of a comprehensive insurance regulatory reform effort that brings the required insurance expertise to Washington, addresses regulatory overlap with the states and has the authority to address the full panoply of regulatory issues that arise in connection with the oversight of this critical sector of the economy.”
Cathy Weatherford, president and CEO of NAVA, testified that “no compelling need has been identified in the insurance and annuity market for an additional regulator focused on consumer protection.”
Moreover, she said, “An additional layer of regulation would only risk confusion, which would exacerbate the already concerning issues with the current regulatory structure.”
Consumers would ultimately be saddled with increased costs and would lack fast access to needed products, “given the natural and inevitable scenario of two different regulators of the same product having differing views about product standards,” Weatherford said.
Representing the National Association of Insurance Commissioners, Ralph Tyler, insurance commissioner of Maryland, said, “The states believe insurance has unique challenges best handled by a single regulatory department. We believe a new agency to regulate consumer protections in insurance is not necessary and would cause the kind of overlaps that lead to preemption of state laws and rules designed specifically to address the complexities of insurance.
In his written testimony, Brian Atchison, president and CEO of IMSA, argued that including insurance-related products under the proposed agency “may be premature and redundant to the extent that a revised insurance regulatory scheme incorporating a meaningful self-regulatory organization will focus on marketing and sales practices to ensure that consumers are purchasing products of their choice that meet their individual goals and objectives.”