Recent dramatic market events and the massive amount of federal financial support provided to insurance giant American International Group, Inc. (AIG), have intensified the debate over whether insurers and producers should be subjected to federal regulation rather than state regulation. Those who support federal insurance regulation see the bailout of AIG as reason enough to revisit the industry’s regulatory framework; other groups interpret the fact that the majority of AIG’s problems occurred at the holding company level as proof of the strength of state-driven insurance regulation.1 Recent news about the $165 million in retention bonuses paid to AIG employees after the firm received federal funds has served to further intensify the debate.2
In the midst of these developments, Congress is moving forward. Yesterday, Representatives Ed Royce (R-Calif.) and Melissa Bean (D-Ill.) announced the introduction of the National Insurance Consumer Protection Act (NICPA, or the Act). The bill offers insurers and producers the option to charter at the federal level and grants a federal insurance regulator expanded powers. The NICPA appears to be substantially similar to the National Insurance Act introduced in the 109th and 110th Congresses.3 The NICPA does include new language addressing systemic risk regulation that has not appeared in previous iterations of federal insurance charter legislation. Under NICPA, state and federal insurance regulators would be required to provide information to a systemic risk regulator to be identified by the Administration. The systemic risk regulator could then recommend corrective actions to be taken to the federal or state regulator with respect to insurers or their affiliates. Importantly, the systemic risk regulator, in consultation with the proposed National Insurance Commissioner, would be authorized to mandate federal chartering for systemically important insurers. The NICPA also establishes a Coordinating National Council for Financial Regulators to serve as a forum for financial regulators to collectively identify and consider issues related to the health and competitiveness of the financial services industry.