House Aide Says Systemic Risk Bill Could Move This Summer

 

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March 3, 2009 Tuesday 10:53 AM EST

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House Aide Says Systemic Risk Bill Could Move This Summer

Raymond J Lehmann

WASHINGTON

Federal legislation creating a systemic risk regulator is likely to move through the U.S. House early this summer, and little doubt remains it will include some form of insurance oversight, a key aide to the House Financial Services Committee told members of the National Conference of Insurance Legislators.

Speaking to the group's State-Federal Relations Committee as it convened in Washington for its spring meeting, Financial Services Committee staffer Thomas M. Glassic said lawmakers hope to meet President Barack Obama's deadline to provide an outline for future financial services regulation by April's meeting of the G-20 in London, but said the actual substance of the bill will require substantial details unlikely to be ready by that meeting. Progress on the initiative has been slowed, Glassic said, by the continued tumult in the financial markets. He added that he doesn't "think anyone expected we would still be putting out fires like we still are."

Beyond providing general oversight to systemically significant insurers, Congress also could at some point take up legislation providing either minimum nationwide standards or day-to-day regulation of some aspects of the insurance market, though it is unlikely to contemplate anything like the "optional federal charter" proposal favored by some segments of the industry, he said. Among potential areas of reform are some of the proposals moved forward out of the Capital Markets and Insurance Subcommittee in the 110th Congress, such as measures calling for a federal Office of Insurance Information and reforms of agent licensing, reinsurance, surplus lines and risk retention groups.

"I don't think that the OFC crowd accepts that their language, their processes, this idea of regulatory relief is really not very in vogue in Washington anymore....but some reform, even outside of the systemically significant realm, is on its way," Glassic said.

Similar action also is being considered on the Senate side of Capitol Hill, according to Robert Gordon, senior vice president of policy development and research with the Property Casualty Insurers Association of America. Gordon said he has been apprised by Senate Banking Committee Chairman Christopher Dodd, D-Conn. that insurers must come forward with constructive ideas about regulation or risk being shut out of the debate altogether.

"Sen. Dodd and Banking leadership told us Congress will pass comprehensive financial restructuring, insurance will be included, it won't be optional anything, and PCI better be at the table with constructive ideas about how to approach this -- don't just say no," Gordon said.

Former Iowa Insurance Commissioner Terri Vaughan, recently named chief executive officer of the National Association of Insurance Commissioners, said insurance regulators, too, have been pushing to have a say in the debate, and suggested one of the features often cited as a weakness in the state system -- its fragmented nature -- actually could be shown to be a strength in the current environment.

But according to Gary Hughes, executive vice president and general counsel for the American Council of Life Insurers, the problem facing groups like ACLI and the NAIC alike is that "both financial institutions and their regulators don't have a whole lot of credibility right now."

"The fact of the matter is, and we've been told this time and time again, don't expect your views -- whether you're a company or a regulator -- to carry a whole lot of weight, because you're viewed as part of the problem rather than a real part of the solution," Hughes said.

Even consumer advocates like the Consumer Federation of America's J. Robert Hunter, historically supportive of state regulation, have backed off that support somewhat, with Hunter noting CFA is "in the process of reviewing" its stance on effective regulation of the insurance marketplace.

"(The states) have the experience, have the capabilities, they're more responsive to local needs, so I would argue there should be some remaining state role," Hunter said. "The question is, how do you balance the feds and the states, because there are some things the federal government can do better, like international and probably the systemic risk aspects."

(By R.J. Lehmann, Washington bureau manager: raymond.lehmann@ambest.com)

March 4, 2009

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