Lawmakers are preparing to consider the Restoring American Financial Stability Act of 2010 (S. 3217). As currently written, the bill creates an Office of National Insurance (ONI) within the Treasury Department that is overly broad in scope and that undermines state-based insurance regulation, which has proven effective in largely insulating the insurance industry from the recent financial crisis.
“This is a federal government solution that – like many federal solutions – is being proposed for a problem that does not exist,” said PIA National Executive Vice President & CEO Leonard C. Brevik. “This federal insurance office is too expansive, too expensive and counterproductive.”
Brevik added that inclusion of the ONI language renders S. 3217 inconsistent. While it purports to attempt to fix the many flaws in federal regulation of the banking and securities sectors, it creates a path to remove insurance from more stringent regulation by the states.
As currently drafted, S. 3217 grants the ONI the power to recommend which insurers should be supervised by the Federal Reserve and to preempt state laws that it finds inconsistent with international agreements. It permits the Treasury Secretary to assign the office additional, unspecified duties. And it directs this new office to evaluate and recommend to Congress the best ways to modernize the insurance system.
“The legislative language creating this office is written from the perspective that the federal government always knows best,” Brevik said. “PIA believes that when it comes to insurance, the federal government does not know best, the states do. Deficient federal regulation of banking and securities led to the financial crisis – while effective regulation of insurance by the states was successful.”
He added that assigning a federal insurance office the task of evaluating the state-based insurance system is “an inherent conflict of interest which will guarantee a lack of objectivity.” At minimum, the Government Accountability Office (GAO) should be tasked with a parallel study to ensure that any recommendations are balanced, he said.
“This bill sets up the infrastructure for a federal takeover of state-based insurance regulation,” Brevik said. “PIA supports state regulation of insurance and joins with the National Conference of Insurance Legislators in opposition to creating an Office of National Insurance.”