A Run on the Insurance Company?

WASHINGTON—House Financial Services Committee members today voiced strong interest in solvency and product issues dealing with life insurance at a hearing today.

The hearing, held by the Housing and Community Opportunity Subcommittee of the House Financial Services Committee, dealt with insurance oversight and legislative issues.

A focus of the hearing was three legislative proposals being considered by the panel that would scale back the authority of the Financial Stability Oversight Council, the Federal Insurance Office and the Office of Financial Research, both within Treasury, to independently monitor insurers.

After hearing testimony from Daniel Schwarcz, a funded consumer representative for the NAIC and a law professor at the University of Minnesota, Rep. Judy Biggert, R-Ill., chairman of the panel, asked members of the panel if there are substantive differences between banks and insurers and if there could ever be a run on an insurance company.

Rep. Nydia Velazquez, D-N.Y., asked if there was any protection by state regulators against systemic risk.

Joseph Torti, III, Rhode Island superintendent of insurance responded when asked about who would protect the economy from systemic risk in insurers by saying it is “hard to imagine” systemic risk in an insurer.

Unsurprisingly, he spoke about the need to preserve the role of state regulators. Then Torti was asked if AIG’s holding company was indeed a thrift.

Rep. Steve Stivers, R-Ohio, noted that he found it “hard to imagine” a mass run on life insurance accounts.

“It seems like the banking system would have to collapse first; it seems difficult to imagine,” Stivers said.

But Schwarcz persisted. “Yes, there could be a massive loss of confidence in a life insurance company.

“News stories would come out, and propel people to start worrying and start taking out cash from their policies to the extent they could, Schwarcz said.