Federal insurance regulation needed, U.S. panel told

Noting that the Obama administration is expected to unveil its plan to enhance government oversight of financial markets on Wednesday, “it also appears likely that we will soon consider reforms aimed at mitigating systemic risk,” Rep. Paul E. Kanjorski, D-Pa., chairman of the House Financial Services Committee’s Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, said at the hearing.

He added that while the specifics of a plan regarding insurance remain unknown, “we have spent enough time debating those issues to come to some conclusions. For example, I believe that only ostriches can now deny the need for establishing a federal insurance resource center and a basic federal regulatory structure.”

“We can no longer sweep insurance regulation under the rug and cross our fingers that nothing will go wrong,” Rep. Kanjorski said at the hearing of the subcommittee he chairs. “We tried it before and learned that such an action may hide the mess for the short term, but pose greater problems in the long term.”

Rep. Kanjorski said the federal government should “actively regulate” lines of insurance that present systemic risk or have national significance, citing bond issuers, mortgage insurers and reinsurers. “I also believe that we should examine how we can promote greater uniformity in the industry, with or without the establishment of a federal charter” for insurers.

A member of the European Parliament told Tuesday’s hearing that the lack of a single regulatory voice for U.S. insurers could work to their detriment.

“The USA’s state-based regulatory system makes the dialogue between the E.U. and USA much more complicated,” testified Peter Skinner, a U.K. member of the European Parliament and rapporteur on Solvency II, which will overhaul the regulation of insurers in the European Union. “The significant divergence in regulatory systems also makes it more difficult to resolve problems such as the perennial issue of the discriminatory collateral requirements applied by USA regulators to non-USA reinsurers,” he told the House panel.

“The U.S. is disadvantaged by the lack of a federal entity with constitutional authority to make decisions for the country and to negotiate international insurance agreements,” said Frank Nutter, president of the Washington-based Reinsurance Assn. of America.

But not all witnesses supported federal insurance regulation.

Property/casualty insurance does not pose a systemic risk and therefore should not be subject to any new federal systemic authority, John Hill, chairman-elect of the National Assn. of Mutual Insurance Cos. and president and chief operating officer of New York-based Magna Carta Cos., told the subcommittee.