WASHINGTON – Congressional oversight will be vital to ensuring the state-based insurance regulatory system that has protected consumers for more than 150 years is not undermined by federal or international regulatory encroachment, according to key insurance industry leaders.
Kurt Bock, CEO of the COUNTRY Financial group, testified before the Senate Banking Subcommittee on Securities, Insurance and Investment on behalf of the National Association of Mutual Insurance Companies (NAMIC) and the Property Casualty Insurers Association of America (PCI). He noted the U.S. insurance marketplace faces “unprecedented challenges,” as international agencies work toward a global standard for regulation in the wake of the 2008 financial crisis. Bock explained the strength of current state-based regulatory system was affirmed under the Dodd Frank Act, and the U.S. has one of the most competitive and pro-consumer marketplaces in the world.
“When I hear that our U.S. federal representatives are overseas negotiating new global bank-like insurance standards, I simply must ask, what is the problem they are trying to fix?” Bock said.
PCI and NAMIC together represent three-quarters of the property-casualty insurance industry. The trades together voiced concerns about the lack of transparency surrounding international insurance negotiations, a situation which has grown worse in recent months. The International Association of Insurance Supervisors (IAIS), a group working to craft the international standard, last year kicked out all public observers from its working groups – not only industry members who paid to be there but also consumer groups who had been attending for free. The IAIS now holds “listening sessions,” and Bock said this is “similar to Congress kicking out the public from hearings and mark-ups, but adding some town hall meetings. They have simply eliminated public accountability.”
Bock’s testimony noted challenges in domestic policy, suggesting Congress could consider clarifying some of the powers given federal agencies under the Dodd-Frank Act. Under the law, the Federal Reserve has authority to regulate savings and loan holding companies, including those owned by insurers. Bock suggested that Congress should consider additional action to make oversight more proportional to the size of the bank and more tailored to focus on risks to the Federal Deposit Insurance Fund instead of intruding into state-regulated insurance. The testimony also suggested any federal capital standards imposed on insurers should use state-based insurance measurements such as risk-based capital.
“Our industry has no complaints about the very professional Federal Reserve staff. But we wonder whether Congress truly intended to create Fed supervision of Main Street insurers and whether the Fed’s efforts can be more proportional to the banking risks involved,” said Bock. “It is essential that the Fed get it right when it comes to setting a capital standard for companies they regulate, such as by adopting an aggregate legal entity capital approach relying on state-based measures and triggers.”
Charles M. Chamness, president and CEO of NAMIC echoed Bock’s concerns, and his call for further congressional oversight.
“The effort toward establishing a global standard for insurance regulation carries the potential to cause harm to the United States insurance marketplace, and we need to ensure that our representatives in these negotiations are presenting a united front to protect and advance the proven, crisis-tested and consumer-focused regulatory structure we have in the U.S.,” Chamness said. “Similarly, as the Federal Reserve is given greater regulatory authority over some insurance companies, the capital standards it sets must be consistent with those used by state regulators, rather than in lieu of them. Strong oversight and, when needed, additional clarification from Congress is vital to achieving both of these goals.”
David A. Sampson, PCI’s president and CEO also added, “As Kurt emphasized in his testimony, it is critical that policymakers continue to support the strong state-based insurance system. The U.S. insurance market is one of the most robust regulatory systems in the world. Imposing a one-size-fits-all, bank-like capital standard could destabilize the highly competitive U.S. insurance market that greatly benefits U.S. consumers. Policymakers should insist on an open and transparent policy development process and the U.S. representatives who engage in international discussions should reach consensus prior to advocating internationally.”
Bock submitted written testimony to the Senate Subcommittee on Securities, Insurance and Investment. The testimony can be found here.
Combined, NAMIC and PCI represent nearly 2,000 insurance companies, more than 75 percent of the property-casualty insurance market.