US debate rages on

Soon to be introduced in the House of
Representatives, the National Insurance Consumer Protection and
Regulatory Modernisation Act is set to spark heated debate on the
thorny issue of federal regulatory involvement of the US insurance
industry.

Central to the proposed legislation is the
formation of an Office of Insurance Information within the US
Treasury, which one of the bill’s two authors, congressman Ed
Royce, stated would fill a gap prior to beginning debate on
regulatory reform.

Focus of reform has long been on creation of
an Optional Federal Charter (OFC) that would enable insurers to
choose between current state regulation and federal regulation.
Proposed legislation in this regard was introduced in the Senate
and Congress in 2007 but not implemented into law.

An OFC remains strongly supported by industry
body the American Council of Life Insurers (ACLI) and continues to
gain support elsewhere, including that of Federal Reserve Board
chairman Ben Bernanke. In February, Bernanke recommended at a House
of Representatives financial services committee hearing that an OFC
should be given “serious consideration.”

“No one has a better vantage point to observe
the nation’s financial markets than chairman Bernanke,” said ACLI
president and CEO Frank Keating.

Keating continued: “A national insurance
regulatory authority that has the same status as federal banking
and securities regulators would significantly enhance the ability
of the federal government to identify systemic risk in the
financial markets and address problems before they reach the crisis
stage.”

Not all agree, among them the National
Conference of Insurance Legislators which in a letter to the US
Treasury warned: “Do not let deregulation advocates fool you.
Failures at AIG had little to do with state regulation and more to
do with inadequacies among and between federal regulators.”

An OFC will also not be cheap. According to
consultancy Promontory Financial Group, a federal insurance office
required to oversea an OFC would probably have an annual budget of
$465 million, funded by user fees.