Treasury first announced its plans in June to review and recommend improvements to the way financial services is regulated and asked for public comments in early October. Today’s letter is AIA’s submission.
The Department’s blueprint is scheduled to be released early next year. AIA’s letter has been reproduced below in its entirety:
Dear Secretary Paulson:
The American Insurance Association (“AIA”) represents approximately 350 major insurance companies that provide all lines of property/casualty insurance and write more than $123 billion annually in premiums. We appreciate this opportunity to offer input into Treasury’s review of the regulatory structure for insurers, in conjunction with your preparation of a blueprint for an improved U.S. financial regulatory structure.
Most of our comments relate specifically to the need for regulatory reform of the property/casualty insurance industry, through the enactment of Optional Federal Chartering (“OFC”) legislation. At this juncture, we offer no comments on the advisability of a single financial market regulator or a “twin peaks” model of legislation. We do not believe that such an approach is feasible as long as many major banks and securities firms are regulated at the federal level, while all insurance companies labor under a disjointed system of state regulation. Our immediate imperative, therefore, is to reform the property/casualty insurance regulatory system by providing insurers with the option of federal regulation; we believe this is critical to the future vitality of our sector and is a necessary predicate to the consideration of any type of consolidated regulatory structure that ultimately might oversee insurers, national banks, and securities firms.
Insurance is the promise of financial protection when there is an unexpected event—a major natural disaster or more localized storm, a raging wildfire or kitchen blaze, a class action lawsuit or individual auto claim. Each of these claims is important not only to the policyholder(s) experiencing a loss but also to our society’s reliance on the insurance safety net. Thus, the primary and overarching purpose of insurance regulation is to oversee the financial condition of insurance companies and prevent insolvencies that compromise the full payment of claims.
Unfortunately, the current insurance regulatory system has lost its focus on solvency and instead has evolved into a bureaucratic maze of government price and product controls, accompanied by complex and inconsistent rules regarding virtually all aspects of market conduct, many of which create cost and delay but do little to protect the consumer.
Many aspects of state insurance regulation may have been appropriate when they were put in place decades ago but have been rendered obsolete by the rapid pace of technological change and nationalization/globalization that characterize our economy. We live in a highly mobile society that is built upon anticipating and rapidly responding to consumer demands; yet, the delays that are inherent in the insurance regulatory system mean that it may take months (and sometimes years) for new products to be approved, and some innovations never make it into the market at all.
What’s needed is a fundamental restructuring of insurance regulation that addresses the market inefficiencies of government price and product controls, the non-uniform implementation of regulatory standards, and the structural barriers to a more holistic approach to the regulation of all U.S. financial servic