Although the hearing was not designed to address insurance issues, several of the witnesses used the opportunity to push Congress to consider federal regulation of insurance.
“We are puzzled that anyone would suggest that the current turmoil in the financial markets is somehow an argument for a federal insurance regulator,” said Jimi Grande, NAMIC’s vice president of federal affairs. “If anything, it demonstrates how effective the current system of state-based regulation has worked.”
As Grande pointed out, the collapse of AIG was precipitated by the balance sheets of its financial services subsidiaries, which were regulated at the federal level. The states, on the other hand, had built a regulatory moat around the assets of its insurance subsidiaries, effectively protecting both company and consumer.
“It is clear that Congress needs to rethink how certain exotic financial instruments are regulated,” Grande said. “However, as federal policymakers continue to study the causes and effects of the economic turmoil, NAMIC cautions them to make certain that any regulatory reform initiatives are narrowly tailored to address specific market problems.”
According to Grande, Congress should avoid sweeping measures that, in the name of addressing “systemic risk,” impose new regulations where they are not needed while hindering or dismantling the very regulatory systems – in this case state insurance regulation – that have proven most effective.
“To conclude that the financial meltdown demonstrates the need for federal regulation of insurance indicates a fundamental misunderstanding of the situation and serves merely to distract from the process of passing much needed reform,” Grande said.