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.
This is a “potentially calamitous situation, and we need to think about it, [where] the state guaranty funds would not would not cover all the exposure out there.”
Stivers also said that he was concerned about the cost of data collection and other demands from the FIO.
But Schwarcz said in response that the FIO needs subpoena power “so it is not beholden to state regulators.”
Rep. Michael Capuano, D-Mass., said at the hearing that he is concerned that there will be one big insurance company if everyone consolidates.
Capuano also defended the current language in the DFA concerning the powers of the FIO and FSOC. He said he is concerned that, “if we don’t have information gathering from neutral people, all kept confidential, of course we put ourselves at risk, for the outliers, who can drag the entire economy down.”
He explained that, “I have absolute faith that the insurance company is smarter than government and you will find ways [around things]…to pretend that a major industry player will never ever put us in a difficult situation is wrong.
“I am worried about what could happen in the future,” he said.
Although the hearing focused on property and casualty issues, Capuano used the occasion to note his concern about his constituents outliving their savings.
He said there is longevity insurance but no consumer can find a product that is inflation-adjusted, he said.
“Why do we have insurance companies if they don’t do risk taking, the job they are supposed to do?” he asked.
“What do we do to cause the annuity and life insurance industry to offer what people want—an inflation-adjusted annuity?” he said.