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SEC Candidate Favors New Life Regulatory Strategy

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Financial services policy watchers are expecting President Donald Trump to nominate Hester Peirce to fill an open seat on the U.S. Securities and Exchange Commission.

If Peirce joins the SEC, she could increase the agency’s overall level of interest in insurance regulation. 

(Related: Trump Said Likely to Name Hester Peirce as SEC Commissioner)

Peirce is a senior research fellow at the Mercatus Center, an arm of George Mason University, and director of the center’s financial markets working group.

Before Peirce began working for the Mercatus Center, she worked on the staff of Sen. Richard Shelby, R-Ala., on the Senate Banking, Housing and Urban Affairs Committee. She worked on the committee staff while the administration of former President Barack Obama was implementing the Dodd-Frank Act.

She also has worked as a staff attorney at the SEC.

Peirce has a bachelor’s degree in economics from Case Western Reserve University and a law degree from Yale.

In March 2015, Peirce discussed her views on U.S. insurance regulation in “Insurance Regulation in the Dodd Frank Era.” The Indiana State University business school posted a copy of the paper on the web when she appeared at an insurance public policy conference there.

Pearce suggests in the paper that, even though insurers might start out hating the idea of being designated as a “systemically important financial institution” under the Dodd-Frank Act, they might eventually end up using being officially too big to fail as a marketing tool.

SIFI status could be especially helpful to issuers of life and annuity products, Peirce writes.

Life insurers’ “long-term viability matters greatly to policyholders,” Peirce writes. “Designated insurers are likely to highlight their status as a reason consumers should select them over their competitors.”

Today, regulators in many different states may supervise the same insurer, and the Federal Insurance Office is also trying to play a role in insurance regulation, Peirce writes.

The current mixture of regulation by the federal government and multiple states is costly and systemically dangerous, Peirce writes.

“States’ harmonization efforts have been inadequate,” she writes. “Sporadic federal interventions in the existing state regulatory system may help to increase uniformity across states, but also could multiply costs by adding another layer of regulation.”

If the Federal Reserve system ends up applying a uniform approach to regulating the insurers designated as SIFIs, that “could make the system more prone to simultaneous failures,” Peirce adds.

Peirce says regulators could create a cheaper, more efficient, more stable system by putting a single home-state regulator clearly in charge of overseeing each insurer, rather than leaving groups of state regulators to allocate oversight responsibility amongst themselves.

States would compete for a chance to be an insurer’s chartering state, and that would push state regulators to be more efficient, Peirce writes.

Peirce adds that a state chartering system would probably leave the current limited state guaranty fund system in place, while a federal chartering system could lead to a shift to a broad federal insurance guarantee system.

Shifting to federal guarantee system would make policyholders more comfortable, and that’s a bad idea, Peirce warns.

Sticking with state guaranty funds will make insurance buyers and other market players continue to take responsibility for monitoring the safety and soundness of insurers, Peirce writes.

In the comments on the relationship between insurance guarantee arrangements and moral hazard, Peirce cites several papers by Scott Harrington, an insurance professor at the University of Pennsylvania business school. 

— Check out Mercatus’ Peirce Said to Be Leading Candidate for SEC Seat  on ThinkAdvisor.