Posted on 06 Mar 2009
Insurance industry representatives and other financial services companies told a House panel Thursday that they support the idea of a systemic risk regulator as a means of stabilizing the current financial market and to prevent future collapse.
The group appeared before the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. The hearing is designed to examine how to improve the ability of the government to detect risks in the private sector and prevent market disruption. And while panel members agreed that a systemic regulator is needed, they did not say who that regulator should be.
Panel members said that the systemic risk regulator should work with other federal regulators, such as those overseeing banking and financial institutions. The regulators should cooperate to identify problems at a holding company before it triggers the type of domino effect that started with U.S. mortgage lenders Fannie Mae and Freddie Mac and is now threatening the survival of American International Group Inc.
"Systemic risk is a crucial issue that Congress must deal with now," Robert A. DiMuccio, president and chief executive officer of Amica Mutual Group and a representative of Property Casualty Insurers Assn. of America, told the subcommittee.
National Association of Insurance Commissioners CEO Therese M. Vaughan told subcommittee that "the NAIC is a full partner with Congress and the Administration in seeking ways to improve the financial regulatory system and promoting financial stability. The state-based insurance regulatory system is one of critical checks and balances. We have a long history of consumer protection, conservative solvency oversight and market stability. Any system of financial stability regulation can, and must, build on this proven regime.”
It's the interconnectivity of those companies, AIG for example, that panel members say need to be overseen by the proposed systemic risk regulator. Ms Vaughn said: "Any framework established to regulate financial stability must integrate, but not displace, the successful state-based system of insurance regulation. “For more than 150 years, state insurance regulators — working together with state legislators — have continued to improve, enhance and modernize state-based insurance regulation for the benefit of consumers and industry alike.”
"We are in no way calling for a 'super' regulator," said panelist Steve Bartlett, president and CEO of the Financial Services Roundtable, "but we need someone to help us connect the dots."
Rep. Scott Garrett (R-NJ) ranking member of the subcommittee, said the committee should be cautious as it works on the federal government's role in insurance regulation, noting that while time is of the essence, correct action is necessary to protect against future mistakes.
"This subcommittee and the full Financial Services Committee have a lot on their plates," Mr. Garrett said. "A lot is at stake depending on what this Congress ultimately decides to do in the area of regulatory reform. I can't stress this point enough: we need to get this right and not move too quickly simply to illustrate that we are 'doing something.'"