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March 5, 2009 Thursday 03:56 PM EST

470 words


NAIC: Federal Risk Oversight Should Complement, Not Replace State Regulation

Sean P Carr

WASHINGTON

The National Association of Insurance Commissioners wants to be a full partner with Congress and the Obama Administration in developing systemic risk regulation -- provided it does not supplant or pre-empt the traditional state-based insurance regulatory system, its chief executive officer, Terri Vaughan, said at a Capitol Hill hearing.

Any federal systemic risk regulator should integrate with, not displace, state insurance commissioners. It is important to note that regulators can make mistakes, she said, speaking before the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.

"That's what we have in the state system, multiple eyes on the problem," Vaughan said.

Subcommittee Chairman Paul Kanjorski, D-Pa., said pinning down exactly what is systemic risk is difficult. He quoted from former Supreme Court Justice Potter Stewart, who commented on the difficulty of defining obscenity by saying, "I know it when I see it."

Kanjorski said, "We all seem to know it when we see it. Before it arrives, we have no idea."

That is precisely the problem when it comes to discussing new regulation for credit default swaps and other practices that could risk the stability of the economy, ranking Republican Scott Garrett, R-N.J., said. There is no single definition of systemic risk, or what such a regulator would do, he said.

Robert A. DiMuccio, president and CEO of Providence, R.I.-based Amica Mutual Group, offered a simple definition: "If the government has to step in to bail out a company to protect the larger economy, that's a systemic risk."

Testifying on behalf of the Property Casualty Insurers Association of America, DiMuccio proposed that the Federal Reserve Board take on the task of a systemic risk overseer, but only in a way that is completely separate from other bank holding company oversight authority. This way, an such oversight would fill gaps in current regulation without adding a "vast new bureaucracy," he said.

Two subcommittee members, Rep. Ed Royce, D-Calif., and Rep. Melissa Bean, R-Ill., previously said the National Insurance Modernization Act they plan to introduce will include a systemic risk regulator with the power to compel oversight of insurance firms (BestWire, March 4, 2009). Such oversight is favored by the Obama Administration.

In related news, House Financial Services Committee Chairman Barney Frank, D-Mass., announced the full committee will hold a series of hearings this month that will, in part, address creating a systemic risk regulator. The hearings will also focus on the issues of streamlining regulation and strengthening investor and consumer protections. The hearings are currently scheduled for March 17, March 20, March 24 and March 26.

(By Sean P. Carr, senior associate editor, BestWeek: Sean.Carr@insurancenewsnet.org)

March 6, 2009

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