Insurance Oversight Overkill; New Federal Office Interferes with Efficient State Insurance Regulation
Byline: John D. Doak, SPECIAL TO THE WASHINGTON TIMES
For more than 150 years, the states have protected consumers while maintaining vibrant and solvent insurance markets. Unfortunately, in the wake of the 2007-08 financial crisis, the federal government thinks it must assume those responsibilities.
Effective regulatory systems are in place in every state for insurance product filing, licensing and consumer assistance. State insurance departments also collect insurance taxes, monitor company solvency and investigate fraud.
Insurance commissioners are elected by the people in 11 states. Most others are appointed by their governors. Unlike federal bureaucrats, these commissioners and directors serve in roles closer and more responsive to voters.
Since 1871, the National Association of Insurance Commissioners has facilitated state regulators' efforts to set benchmarks and pursue mutual goals. Working cooperatively, state insurance departments have modernized insurance regulation and developed standards that facilitate business across state lines.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 gave the federal government broad powers to usurp state insurance regulation. A legislative byproduct, in part, of the financial collapse of 2007-08, Dodd-Frank created the Federal Insurance Office (FIO). This new agency within the U.S. Department of the Treasury provides additional oversight for an industry already among the nation's best regulated.
This might be understandable if insurers played any significant role in the financial meltdown, but they did not. Even in the case of taxpayer-rescued AIG, it was not the conglomerate's insurance business that tanked. Periodic financial examinations and strong capital requirements by state regulators minimize such failures. Each state also maintains a guarantee fund protecting consumers in the event of a company's insolvency, and no state's guarantee fund has ever failed to pay when a company has gone under.
It is ironic that the Federal Insurance Office was birthed because the feds failed so miserably at assessing systemic risk in the financial markets. Washington's track record on creating effective bureaucracy is poor, yet the FIO gives Washington new powers over an industry it has never before policed.
Beyond the small print stating that we promise to get it right this time are practical concerns about bureaucratic redundancies escalating costs, clouding enforcement and stifling product innovation, and the prospect that this is the first step in an ill-advised federal takeover of insurance regulation.
The FIO introduces another agency to which companies must report - one that assesses systemic risk in the industry (although states already monitor solvency), gathers information on insurers' business practices (by subpoena, if necessary) and has the power to recommend to the new Financial Stability Oversight Council that an insurer be designated a nonbank financial company supervised by the Federal Reserve. …