Congress will soon establish a new federal office within the Treasury Department to oversee the insurance industry. Initially, the office will have limited power. But as is the way in Washington, expect the office’s authority to grow over time.
With the failure of insurance giant AIG fresh on their minds, lawmakers want to make sure no other major insurers fall through the cracks in the patchwork of state insurance and national bank regulators that now govern the system. AIG eventually took more than $180 billion in government support after risky deals caused the company to implode. “We need federal regulation, and the federal insurance office is a good first step,” says Blain Rethmeier, senior vice president for public affairs at the American Insurance Association.
The new office’s first task will be to gather and consolidate industry data, including claims histories, financial reports and capital levels. It then will make policy recommendations to Congress and to the systemic risk regulator that Congress will create as early as next year. “The office would be a comprehensive repository to get the straight deal on what’s happening in the insurance industry,” says Bill Coffin, director of publications at the Risk and Insurance Management Society.
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The office will also give insurers a much needed voice overseas. As the industry has become more global, it needs its own representative in trade talks. “It’s good to have an entity at the federal level that would play a bigger role in negotiating international agreements,” says Nicole Allen, vice president at the Council of Insurance Agents and Brokers. “Our companies want to expand abroad because they have clients also doing businesses in other countries.”
A still bigger role may be down the road. If Democrats succeed in their goal of creating federal charters for insurers, the new office is likely to oversee the process. The administration has expressed support for an optional federal insurance charter, but Congress backed off the contentious idea, in part because its agenda is already full. Democratic leaders promise to revisit the issue next year, and their efforts will be buoyed by the new insurance office.
The idea of more power for federal regulators concerns some insurers and turf conscious state regulation offices. They’ve already worked hard to scale back the authority of the new office to make sure it doesn’t preempt state rules. “AIG is, in fact, a poster child for communication between different state insurance regulators,” says Michael T. McRaith, director of the Illinois Department of Insurance. “Even in the worst times, it paid all of its policyholders.”
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