Proposals put forward by the US Treasury
that would see state regulation of insurers remain and the creation
of an Office of National Insurance have received a positive
reception from insurance industry players. However, a proposed
Consumer Financial Protection Agency has emerged as a major area of


Setting out President Obama’s
administration’s proposals for sweeping reform of the US financial
regulatory structure, an 85-page White Paper prepared by the
Treasury Department has received a generally positive reception by
insurance industry players.

However, it is clear the responses of
regulatory and industry bodies rest heavily on their particular
interpretation of the White Paper.

From the National Association of Insurance
Commissioners (NAIC), a body representing regulators of the 50
states, the District of Columbia and five US territories, there was
a clear signal of relief that its members’ almost 140-year
jurisdiction over insurers was not about to come to an abrupt

NAIC CEO Therese Vaughan said in a statement:
“While no one proposal is completely perfect, our initial read of
the administration’s financial overhaul plan seems to reflect what
is most important to us: preserving the consumer protections and
financial solvency oversight of the historically strong and solid
system of state-based insurance regulation.”

Vaughan continued: “State regulation’s strong
solvency system and consumer protections have served consumers
well, as evidenced by the relative stability in the insurance
markets. The proposal appropriately focuses on the problems that
need fixing, by addressing systemic risk and other regulatory

ACLI sees things

In its response to the White Paper,
the American Council of Life Insurers (ACLI) set out a different
interpretation, heavily influenced by its call for introduction of
an optional federal charter for the industry. An optional federal
charter, the ACLI has long-argued, would increase the industry’s
competitiveness by, for example, eliminating regulatory complexity
faced by insurers operating in multiple states.

“The White Paper recognises the 135-year-old
state regulatory system is riddled with inefficiencies,
inconsistencies and unnecessary barriers to competitiveness that
have not been alleviated despite sincere efforts by state
regulators and the NAIC to advance uniformity,” stressed Frank
Keating, president and CEO of the ACLI.

Keating continued it was also important the
White Paper noted that insurance is global in nature, and the lack
of a federal office with responsibility and expertise in insurance
hampers the US insurance industry’s effectiveness in dealing with
other nations.

“As the White Paper notes, the US is the only
member of the International Association of Insurance Supervisors
that does not have a federal office that can speak for our country
with a single voice,” said Keating.

This shortcoming is one the White Paper
addresses, proposing the establishment of an Office of National
Insurance (ONI) within the Treasury. ONI would have no regulatory
powers and, by and large, is paralleled in the establishment of an
Office of Insurance Information currently being considered in the
House of Representatives.

However, Keating believes the establishment of
ONI suggests the Obama administration is moving more in the
direction of an optional federal charter.

“We applaud Treasury’s proposal to create an
Office of National Insurance as a first step towards eventual
establishment of a federal functional insurance regulator,” said

Clearly not in agreement with Keating’s
conclusion, California Insurance Commissioner Steve Poizner said
the creation of ONI “avoids the trap of creating a federal
insurance regulator”, something he has consistently opposed.

Poizner continued that the White Paper
appropriately acknowledges the primary role the states play in
regulating the insurance business to benefit consumers.

“State oversight of insurance companies,
coordinated among all state regulators, is the reason that, among
all the financial players in this country, it is the insurers who
are and remain the most stable and the least in need of federal
assistance,” Poizner said.

No done deal

Proposals contained in the White
Paper are far from a done deal, with debate raging at the House of
Representatives’ financial services committee (FSC) chaired by
congressman Barney Frank.

One aspect of reform in the White Paper has
prompted strong insurance industry opposition; the proposed
Consumer Financial Protection Agency (CFPA), a federal body that
would have wide regulatory powers.

Though the CFPA’s precise functions are vague,
National Association of Insurance and Financial Advisers president
Cliff Wilson said in testimony before the FSC on 24 June that it
could usurp product regulation from state insurance regulators.

“We believe it is extremely dangerous to
separate product regulation from solvency regulation,” Wilson

Also testifying before the committee was ACLI
executive vice-president and general counsel Gary E Hughes. He
emphasised that, while the ACLI fully supported strong consumer
protections, it was not happy with the proposed CFPA.

He stressed: “We do not believe the interests
of life insurance consumers would be well served by subjecting life
insurance products to the additional jurisdiction of the CFPA.”

Hughes put forward four reasons for the ACLI’s

• Life insurance products are already one of
the most heavily regulated financial products in the

• There have been no evidence suggesting life
insurance products contributed in any way to the present financial

• Unlike most financial products, the
regulation of life insurance products has a direct and fundamental
relationship to issuer solvency, and therefore cannot be separated
from other aspects of insurance regulation that in the aggregate
constitute solvency oversight, and

• Life insurance product regulation demands a
comprehensive understanding of the fundamental mechanics of the
life insurance business, and that understanding does not presently
exist at the federal level and would not exist within the CFPA
should it be established.

What the ultimate outcome of the Obama
administration’s regulatory reform objectives will be remains to be
seen but undoubtedly progress to finality will be characterised by
heated debate.