Reviews mixed on regulatory overhaul plan

WASHINGTON—Supporters of wide-ranging insurance regulatory reform have cause for hope and concern as Congress prepares to consider the Obama administration's plan to overhaul regulation of the financial services industry.

Although the administration's June 17 white paper did not devote much space to insurance, it did call for establishing an Office of National Insurance within the Treasury Department. The document said in addition to “monitoring all aspects of the insurance industry,” the office would be empowered to work with other nations to represent U.S. interests and “have the authority to enter into international agreements, and increase international cooperation on insurance regulation.”

Setting up such an office enjoys widespread support across the insurance industry, and is one of the top legislative goals of the Risk & Insurance Management Society Inc.

A bill that would establish a similar entity was introduced earlier this year by Rep. Paul Kanjorski, D-Pa., who quickly hailed the administration's endorsement of the idea.

But advocates of even broader federal oversight of insurance note that the administration stopped short of endorsing federal charters for insurers and producers, although the white paper said financial institutions that presented a systemic risk to the economy should be subject to federal regulation through the Federal Reserve Board. Instead of endorsing the OFC, the white paper laid out six principles for insurance regulatory reform (see box). The document mentioned a federal charter for insurers as a possible means to enhance regulatory uniformity.

RIMS “supports the part of the Obama administration's financial regulatory reform white paper which calls for creating an Office of National Insurance within the U.S. Treasury Department,” said Nikolas Kapatos, chair of the RIMS external affairs committee and senior vp and enterprise risk manager of Sterling Bank in Houston.

“RIMS has supported the concept introduced as legislation by Rep. Paul Kanjorski,” Mr. Kapatos said. “While the white paper stops short of endorsing a federal insurance regulator, we are encouraged that the administration is neutral on the federal charter and suggests it is one solution to the current fragmented and inconsistent system of regulation at the state level.”

The paper represents a “good opportunity” for reform, said Joel Wood, senior vp of the Council of Insurance Agents & Brokers in Washington, which supports an OFC. While there are concerns that insurance “will be the stepchild” because of the scope of legislation dealing with financial services systemic risk, Mr. Wood said he remained optimistic that “we'll have an opportunity in the fall to make our case.”

An OFC foe, Charles Symington, senior vp of the Alexandria, Va.-based Independent Insurance Agents and Brokers of America, said the group “is very pleased that President Obama did not recommend creation of a federal charter for insurance as part of his white paper to modernize financial services regulation. In the past, the IIABA has worked with federal policymakers on ways to increase insurance knowledge in Washington, and also deal with certain international insurance issues without creating a new federal insurance regulator.”

An outside observer said the paper's endorsement of the Office of National Insurance “does matter, but its importance is going to be limited.”

Larry Mirel, a partner in the Washington law firm Wiley Rein L.L.P. and a former District of Columbia insurance commissioner, added that while the office will enhance federal insurance expertise and oversight, “I don't think it will result in much of a change in the way in which insurance is regulated. We still have a state regulatory system; this will not change the system.”

Allowing an Office of National Insurance to tap state regulatory expertise will be critical, another insurance legal expert said.

“I believe that the ONI is a good thing,” said Francine L. Semaya, chair of Blue Bell, Pa.-based Nelson Levine de Luca & Horst L.L.C.'s insurance transactional and regulatory practice group in New York and chairman of the American Bar Assn.'s tort trial and insurance practice section's task force on federal involvement in insurance regulation modernization.

“I believe it is right thing to do, and if they're going to be looking at which insurance groups present a systemic risk, they really need the input of the existing domestic regulators,” said Ms. Semaya, who added that involving state regulators in the office would enhance its credibility.

A longtime Washington lobbyist with no ties to the insurance or financial services industries expressed some skepticism about the administration's call.

“Members of Congress have to be responsive to their grass-roots constituents,” said Thomas Blank, vice chairman of Washington lobbying firm Wexler & Walker Public Policy Associates and a former federal official. “I think there's a growing sentiment across the country that maybe we're overreaching on economic intervention,” which would cause lawmakers to view additional intervention cautiously.

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