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Applying regulations meant for banks to insurers could have adverse effects on insurers and their customers, according to speakers at a Capitol Hill briefing on regulatory policy last week.
The discussion, which was sponsored by the Property Casualty Insurers Association of America, examined the question “does one size fit all?” The answer, in regard to regulating insurers and other financial institutions, was “no.”
“The concerns about the direction of international and domestic insurance regulation were really quite strong and quite similar,” David Snyder, a vice president in PCI’s Washington office, said after the discussion.
“These include a lack of transparency in international forums, lack of agreement between the federal agencies and state regulators on critical issues, concern for ultimate consumer costs and threats to the competitiveness of our markets, and, finally, the danger of actually creating systemic risk in a sector that does not have it,” Mr. Snyder said.
Of particular concern to the panelists are efforts to apply “bank-centric” regulations to insurers by international regulators. The concern is magnified by the recent move by the Basel, Switzerland-based International Association of Insurance Supervisors to bar insurers from meetings of its committees and subcommittees.
“Unfortunately, policymakers who do not understand the insurance industry, particularly those steeped in banking, are setting much of the direction,” said Terri Vaughan, dean of the College of Business & Public Administration at Drake University in Des Moines, Iowa, and former CEO of the National Association of Insurance Commissioners. “The risk of unintended consequences, potentially severe ones, is real.”
Ms. Vaughan said the argument that
meetings are closed to insurers to avoid the influence of the industry is “completely flawed.” She said that even with the barring of insurer stakeholders from committee meetings, large European insurers are close to their regulators and know what’s going on in those meetings.
“Europeans are basically trying to export Solvency II, which is a bad regulation,” said Adam Posen, president of the Peter G. Peterson Institute for International Economics, a nonpartisan Washington-based research organization.
“We should be wary of applying banklike standards to insurance companies, given the repeated failures in bank regulation that contributed to the crisis in the first place,” said Mark Calabria, director of finance regulation studies at the libertarian Cato Institute in Washington.
The panelists also addressed the Financial Stability Oversight Council’s process of designating nonbank financial institutions, including insurers, as systemically important financial institutions and thus subject to enhanced oversight by the Federal Reserve Board. Three insurers — American International Group Inc., MetLife Inc. and Prudential Financial Inc. — have been declared SIFIs, although MetLife is challenging that designation in court.
One key issue is how a SIFI can lose that designation.
“The long-term goal should be to get those companies out” from under that designation, said Ms. Vaughan. “Give them an incentive to get out.”
Christina Urias, the NAIC’s managing director of international insurance regulatory affairs, agreed. Insurers designated as SIFIs should be told what the “exit ramp” is to shed the designation and told what caused them to be considered SIFIs in the first place, she said.