Proponents of providing some form of federal regulation or oversight of the insurance industry seized on the Fed's decision to provide an $85 billion lifeline to the industry behemoth as evidence that state regulation needs to be supplanted.
"This unprecedented move by the Fed highlights the dangers of letting a 19th-century system govern a 21st-century marketplace," Rep. Melissa Bean, D-Ill., said in a statement. "Our largest insurers are too complex, too interconnected worldwide, to allow the limited resources of state regulators to serve as the only option for oversight."
Bean is one of a number of lawmakers who support a so-called optional federal charter for insurers, given them the choice to remain regulated at the state level or come under the supervision of a federal regulator that would need to be created. The issue was included as part of Treasury Secretary Henry Paulson's plan to overhaul regulation of the financial-services industry released earlier this year.
Lobbyists for segments of the industry that support a federal charter, including many of the larger property and casualty and life insurers, were already discussing how the AIG takeover could influence congressional action on the issue. Lawmakers will likely be eager to prevent potential emergency actions such as those taken with AIG, one advocate of the federal charter option said, which could create an opportunity for federal oversight supporters to press their case.
"At the end of 2007, AIG had assets over $1 trillion, larger than the GDP of 47 states," Rep. Ed Royce, R-Calif., said in a joint statement with Bean. " Clearly the status quo is no longer an option."
If nothing else, the actions surrounding AIG could give a boost to legislation moving in the House of Representatives to creat an Office of Insurance Information within the Treasury Department to collect information on the insurance industry and set federal policy on international insurance issues. The measure, sponsored by Rep. Paul Kanjorski, D-Pa., could be voted on as early as this week by the House.
"At this time, we have a blind spot within the federal government with respect to insurance information, and my bill would help to correct this problem and protect against systemic risk," Kanjorski said in a statement released by his office earlier this week.