There is an interesting article on Investment News this morning regarding how the insurance industry has largely dodged a regulatory bullet in all of the financial services regulatory overhaul. Now, I say “interesting” kind of how most English folks will nod and politely say that whatever your hitting them with is “interesting” when what they really mean is that you don’t know what you’re talking about.
Point the first: the article repeatedly notes how insurers got out of stronger regulations despite the central role AIG played in the financial crisis. No duh. Anybody who knows anything about the crisis and AIG knows that their insurance operations had nothing to do with it. They have always been solid, even if linked to a larger parent done in by hundreds of billions of dollars in bad bets. Frankly, this point has been made so many times, I wonder why it’s coming up now. It does support my cynical theory that anybody not in the insurance business has not the faintest clue of how it really works, however. Oh, how I wish this could change.
Point the second: A couple of different comments on the nature of the Federal Insurance Office, which as we all know has been relegated to a largely advisory role without any real teeth to it. Jane Cline, West Virginia’s insurance commissioner and the current head of the NAIC gives a predictable quote about how great the state-based insurance regulatory system worked, especially in the financial crisis, and Joel Wood, senior VP of government affairs for the CIAB also notes that the FIO, in its current form, is a pretty good deal, all things considered. Maybe so. But I would feel a lot more comfortable with all of this if the NAIC had not lobbied so hard to kill the FIO. There are plenty of insurers for whom the NAIC model of regulation is overly burdensome, complicated and inefficient. Morever, a strong federal system doesn’t necessarily ensure that regulation would be done any better. It’s not like the Fed has a great track record with this stuff. But at the same time, the various state insurance regulators couldn’t come together and see that something was going seriously awry with AIG. Sure, AIG’s problems weren’t insurance-related, but state regulators had access to all the numbers they needed to see that AIG was headed into oblivion. That they could not coordinate in time to stop AIG from doing what it did reminds me of the failures of the FBI, NSA and CIA to stop 9/11. There, I said it.