Amidst a background of top federal banking oversight nominees espousing the difference between insurance and banking in theory, top state insurance commissioners told President Obama in person that they are experiencing challenges and frustration working on these, and other federal and international regulatory issues with domestic agencies like the U.S Treasury.
Specifically, the head of the National Association of Insurance Commissioner (NAIC) and key NAIC members voiced their concerns to the president about working with the Federal Insurance Office (FIO) on international matters and also the lack of a U.S. state insurance regulatory seat at the table at the G-20’s influential Financial Stability Board (FSB).
NAIC President Jim Donelon of Louisiana and NAIC international Committee Chair Tom Leonardi of Connecticut, along with NAIC CEO Ben Nelson, former Democratic senator of Nebraska and PPACA clutch vote, met at the White House with Obama yesterday to discuss first and foremost the handling of and concern with the high-profile health care coverage policy changes in implementation of the Patient Protection and Affordable Care Act (PPACA).
Nelson and Leonardi added to the agenda when they raised the tension with the FIO issues, it was mentioned later in a call with the media, saying they were trying to smooth out issues with Treasury at a critical time when global policy directives, international capital and other standards are being meted out from afar, but that, “We haven’t had the support from Treasury.”
Obama responded that he was aware of these issues but was not briefed on the level of detail. He said he was supportive of state regulation and told the NAIC group to take its issues up with FSB representation and Treasury’s FIO department in a meeting with Treasury Secretary Jack Lew, according to the NAIC representatives at the meeting. It is unclear if such a meeting is set up, yet.
The White House did not respond to a request for comment on this part of the meeting, beyond the initial read-out on PPACA issues.
The long-awaited FIO modernization paper, due in January 2012, may see the light of day two years later, in January 2014, according to one source. The industry and the NAIC have been waiting on this report above other overdue or underway FIO-originated reports because it will lay the groundwork for a vision for insurance regulation in the United States for some time to come — and also give long-sought clarity on FIO’s involvement in its domestic role. Treasury did not comment on these matters.
Sources informed reporters before the White House meeting that the international issues would be raised by the NAIC members during the meeting, a meeting which some state insurance commissioners vocally rejected on the basis of process. They wrote they felt they did not have implementation decisions and membership discussion fully developed to meet and talk about the proposed presidential policy changes.
The state regulatory representatives also pointed out problems with the role of the FSB, and their outright lack of representation there. The FSB has in recent months endorsed enhanced policy measures for globally systemic important insurers, capital requirement for G-SIIs and international capital requirements for G-SIIs, and “other internationally active insurance groups (IAIGs). The issue for regulators is that there are no insurance regulators with insurance expertise per se on the FSB.
The U.S. members are the Securities and Exchange Commission (SEC), Treasury, which has the FIO, and the Federal Reserve, which is an insurance regulator of domestic systemically important financial institutions and of insurers that have thrift holding companies. The Fed is hiring for oversight positions to bulk up its expertise.
FIO has a statutory role internationally under the Dodd Frank Act and is heavily involved in the International Association of Insurance Supervisors (IAIS), as is the NAIC, in key IAIS committees, and it is here where tensions have surfaced between FIO, the NAIC and industry, which have brought their concerns to the Hill, as well.
Some regulators and industry members feel that the FIO is more beholden to Treasury, that it should not be speaking for U.S. insurance regulation, and that the bank-regulator-dominated FSB is steering the IAIS ship. Both NAIC members and insurance companies on both the life and the property casualty sectors have expressed grave concern about banking standards being applied to insurance companies.
The Fed has joined as a provision member and “participated in and supported” the FSB’s July decision to endorse the enhanced policy measures for G-SIIs including the plan to develop capital requirements for G-SIIs, according to nominee for Federal Reserve Board Chair Jane Yellen in written testimony submitted Nov. 18 in response to questions from Sen. Sherrod Brown, D-Ohio.
“As a new member of IAIS (provisional), we plan to work in a coordinated manner with the other U.S. members on current IAIS initiatives, including development of international capital standards for G-SIIs and other internationally active insurance groups,” Yellen wrote.
Yellen and Treasury Deputy Secretary nominee Sarah Bloom Raskin both testified recently that insurance rules should be insurance-based.
“It is my understanding the capital requirements under development by the IAIS will be insurance-based and will address the types of assets held and liabilities incurred by insurance firms,” Yellen stated.
“We are very supportive of the NAIC raising the internal regulatory issues with the president,” said Dave Snyder, international supervisory affairs executive with the Property Casualty Insurance Association of American (PCI). “Going forward, it is critical that the federal agencies act within their legal bounds, that the FSB become more transparent and that the positions advocated by all U.S. representatives be coordinated and consistent with state regulators who are the day-to-day regulators of the issuance industry.”
This is the same “Stay in Your Lane” sentiment that Nelson has expressed before with regard to FIO, and which is now also directed at the Federal Reserve, because it is venturing, some fear, outside the scope of its regulated holding company entities to insurance capital rules for IAIGs, many of which are beyond its purview as many are neither SIFIs or thrift holding companies.
Also at the meeting was North Carolina Insurance Commissioner Wayne Goodwin, Health and Human Services Secretary Kathleen Sebelius and administration healthcare staff.