Posted on 15 Jul 2009
Advocates of state-based insurance regulation are going to have to compromise with federal initiatives to oversee aspects of the insurance industry, a state regulator told members of the National Conference of Insurance Legislators.
Joseph P. Boyd, director of the Alabama Securities Commission, said he empathizes with calls to keep the federal government out of the insurance regulation business, but "the realities of life" make compromise necessary. Boyd, a former president of the North American Securities Administrators Association, spoke during a roundtable hearing on systemic risk oversight at NCOIL's summer meeting.
In the wake of the American International Group, Inc. debacle and the ongoing financial crisis, the political will is inclined toward greater federal involvement, he said.
"If we don't ask for a seat at the table, we'll be completely cut out," Boyd said.
Under a regulatory reform plan proposed by the Obama administration, the Federal Reserve would gain the authority to oversee non-bank financial entities -- including, potentially, insurance companies -- that pose a systemic risk to the economy due to a combination of size, leverage and interconnectedness. The Fed would be empowered to set capital, liquidity and other requirements.
In congressional testimony, Treasury Secretary Tim Geithner cited AIG and monoline insurance companies as the most conspicuously damaging examples of institutions that were allowed to sell large amounts of protection against certain risks without adequate capital to back those commitments.
NCOIL Vice President and North Dakota Rep. George Keiser said states should hold firm in not ceding their authority to the federal government.
"We can make the best deal with the devil we can or we can stand up to the devil," he said. "It is time to take back our government."
Kansas Sen. Chris Steineger compared the legislators' present circumstances to those of another legislative body -- the Continental Congress, which in 1776 met several blocks away from where NCOIL members gathered. They had a choice of whether to be 13 disunited colonies or one united nation and chose the latter, he said.
"We have to have 50 states united, and sometimes we need a common approach," Steineger said.
The Obama administration's white paper credited the insurance industry for not being a significant contributor to the economic crisis. However, it also called for "increased national uniformity through either a federal charter or effective action by the states."