New NAMIC Report Analyzes Financial Crisis and Cautions Against Federal Overreach

A new report that analyzes the causes of the nation’s financial crisis cautions Congress to avoid disturbing the financial markets and regulatory systems that have served consumers well. The report, from the National Association of Mutual Insurance Companies (NAMIC), was written by former Illinois Director of Insurance Nat Shapo. It highlights structural and behavioral differences between the property/casualty insurance industry and other types of financial institutions, and identifies specific factors that led to the economic turmoil. 
 
The report notes that credit default swaps, which most experts believe played a major role in fomenting the crisis, have been mischaracterized as “insurance” by many. This has led some to conclude that insurance companies are inadequately regulated. The report explains that, in fact, credit default swaps are not an insurance product and have nothing to do with the business of insurance. The report finds no evidence that property/casualty insurers contributed to the financial crisis, and concludes that p/c insurance companies and their policyholders have benefited from a combination of prudent management and a robust system of state-based solvency regulation. 
 
The NAMIC report, “Financial Oversight Failure Highlights Effectiveness of Insurance Regulation,” was sent today to all members of Congress and state insurance policymakers. 
 
“NAMIC member companies – with their established record of conservative management and prudent decision making – know that the state-based system of insurance company solvency regulation has proven to be effective and reliable even as the ongoing financial crisis has exposed weaknesses in the regulatory regimes that govern other financial institutions. As a result, insurance companies today are able to provide their policyholders with needed protection even in a time of terrible strain,” said Chuck Chamness, NAMIC president/CEO. “While not perfect, the insurance financial regulatory system has provided a source of comparative stability during the financial crisis.” 
 
While urging Congress to avoid imposing costly, unnecessary federal regulation on the insurance industry, the report says creating a federal Office of Insurance Information to bolster the federal government’s institutional knowledge of insurance markets would be appropriate. 
 
“A well-conceived OII would address federal information gaps about insurance regulation and assist Congress in overseeing the functional regulation of financial services,” the report states. “For instance, an OII could help federal policymakers monitor systemic risk throughout the financial services industry by providing a central repository to gather and analyze information already collected by state insurance regulators such as insurer investment activity, capital adequacy, and loss exposure. 
 
“The legislative and regulatory solution to the derivatives crisis should address any products and lack of oversight that Congress determines to have caused the problem – but should not trigger unjustified changes in a system whose regulation and products are in fact well structured and stable,” the report points out. 
 
“Certainly there are areas of financial services regulation that are in need of reform,” Chamness continued, “but applying new federal rules and standards to the property/casualty insurance industry in reaction to the current crisis would needlessly disrupt and debilitate the one financial service regulatory system that is not broken.”