On Thursday, May 14, 2009, the House Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises (the “Subcommittee”) held a hearing titled, “How Should the Federal Government Oversee Insurance?”
In a prepared written statement, Representative Paul Kanjorski (D-PA), Chairman of the Subcommittee, stated that “[a]fter the turmoil in the bond insurance marketplace, the decisions to provide substantial taxpayer support to American International Group, and the requests of numerous insurers to get capital investments from the Treasury Department, we can no longer continue to ask the question about whether the Federal government should oversee insurance. The answer here is clearly yes.” The question, according to Representative Kanjorski, “we now must ask [is] how the Federal government should oversee insurance going forward.”
As part of the planned systemic regulator and the resolution authority to take over large troubled financial institutions, bank or not, proposed by the Obama Administration, Representative Kanjorski stated that “Congress must address insurance activities as it creates a new legislative regime to monitor systemic risks and unwind failing non-depository institutions.”
Fellow Subcommittee member Representative Scott Garrett (R-NJ) raised concerns of the unintended consequences the proposals for a systemic risk regulator and a resolution authority for large financial institutions may create. Offering an example, Representative Garrett noted that the insurance industry would face a “quadruple-layered regulatory structure” that would include “state regulation, federal regulation, systemic risk regulation, and resolution authority regulation.” Representative Garrett stated that “[w]hile the topic of federal vs. state regulation of insurance fosters intense debate, I believe we can all agree that a multi-layered regulatory structure for the insurance industry would not provide the best model for a competitive and robust marketplace.”
At the hearing, a panel of experts also discussed other topics such as the positive and negative effects on market discipline a federal insurance regulator would likely create, the pros and cons of an optional federal charter for insurers, how similar and/or different the insurance industry is to the banking industry and why the insurance industry should or should not be regulated in a similar manner, and the successes and limitations of the current state-based regulatory structure in areas such as consumer protection and insurer solvency.
Click here to see copies of the written testimony submitted by Subcommittee members and the panel of experts.