IN THIS ISSUE
• Letter from the CEO
• NAIC Members Urge Congress
to Recognize Success of
State-Based Regulation
• Proposed Royce-Bean Bill
Would Let 'Fox Guard
Henhouse'
• NAIC Testifies on Systemic
Risk in Insurance
• NAIC Names First Distinguished
Scholar in Insurance Regulation
• NAIC in the News
• For More InformationNAIC IN THE NEWS
Read about the NAIC's activities at the White House and the Treasury as the Obama administration works to put the finishing touches on plans for a major revamp of financial services regulations. Click here to read the Roll Call article.
Click here to read why Dr. Therese Vaughan believes Congress will create a systemic risk regulator with some oversight over insurance products, and the role she would like the NAIC to have in regulation efforts.
Click here to read a New York Times letter to the editor written by Dr. Therese Vaughan and NAIC President Roger Sevigny describing how state-based insurance regulation best protects consumers.
In an interview with CNBC's "Squawk Box," New York Insurance Superintendent Eric Dinallo explains that the creation of an optional federal insurance regulator will erode consumer protections by weakening oversight. Click here to view the interview.
Read an interview with Ohio Insurance Director Mary Jo Hudson on the challenges of couples in domestic partnerships when trying to get and keep health insurance. Click here to access the New York Times article.
Click here to read the recent op-ed in The New Jersey Star Ledger written by New Jersey Insurance Commissioner Steven Goldman, in which he describes federal insurance regulation as "misguided at best and opportunistic at worst."
Click here to learn how the NAIC is assisting military personnel eligible for $2.3 million in compensation from a settlement for deceptive sales practices.
FOR MORE INFORMATION
Click on the NAIC’s interactive state map to find information on how to contact your state insurance department.
LETTER FROM THE CEO
Our policymakers are asking important questions during today's global financial turmoil. How did we get here? How do we prevent a recurrence? What regulatory system is most likely to prevent future systemic risk failures? Those are critical questions, but they would be making a mistake if they tinker with the strengths of our current state-based system of insurance regulation.
Two important lessons we've learned are that regulatory policy can be flawed and regulators can make mistakes. A parade of regulators and policymakers have acknowledged errors. Former Federal Reserve Chairman Alan Greenspan, citing his own reliance on "the self-interest of lending institutions to protect shareholders equity," admitted to being in "a state of shocked disbelief." The bottom line is that regulators are human and they make errors in judgment. That's why any structure intended to prevent the next systemic meltdown must be built with this fallibility in mind.
In this turbulent financial sea, the state-based system of insurance regulation has been a relative island of calm. It has experienced its own stresses, to be sure. But it has not recorded the kind of failures as has the banking sector. As Congress considers regulatory reform, lawmakers should consider pondering how the structure of our current state-based system helps counteract the fallibility of regulators. Like all regulators, we make mistakes. But our structure makes it more likely we will catch them early, and it counteracts problems of regulatory capture and forbearance.
Some have suggested we create a federal insurance regulator, reflecting the industry's significance. However, given the importance of insurance in Americans' economic security, we require the checks and balances and multiple eyes as well as the healthy tension that exists in our successful state-based system of insurance regulation.
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. We will continue to work with Congress and the Administration to underscore the benefits of the current insurance regulatory system.
- Dr. Therese M. (Terri) Vaughan, CEO of the National
Association of Insurance CommissionersNAIC MEMBERS URGE CONGRESS TO RECOGNIZE THE SUCCESS OF STATE-BASED REGULATION
During a recent trip to Washington, D.C., 41 state insurance regulators presented a united message to Congress: "maintain the solid infrastructure of the existing state-based insurance regulatory system." In meetings about proposed insurance reform, NAIC CEO Dr. Therese M. (Terri) Vaughan and NAIC President Roger Sevigny emphasized the successes of the state regulatory framework and its consistency during the recent financial crisis.
This year's meeting with lawmakers came at a crucial time, as Congress continues to craft responses to deal with the financial crisis that began last year. Specifically, NAIC leaders spoke about changes and modernization efforts that provide federal assistance to the state regulatory system under necessary circumstances, but they cautioned against shifting all regulatory responsibilities from the state to federal government. Commissioners also spoke with individual members of Congress about building upon the successful model of the current state-based regulatory system as any framework for any reform.
Additionally, the NAIC advocated "broad standards for health insurance regulation rather than prescriptive rules," thus providing flexibility and not limiting the ability of state regulators to identify local and regional market conditions.
PROPOSED ROYCE-BEAN BILL WOULD LET ‘FOX GUARD HENHOUSE’
The NAIC strongly believes that legislation introduced by U.S. Representatives Ed Royce (R-CA) and Melissa Bean (D-IL), which would provide for an optional federal charter for insurers and insurance producers, strips the states of insurance oversight authority and denies consumers of the time-tested protections that state regulatory power provides. Immediately following the introduction of the bill on April 2, NAIC President Roger Sevigny said the Royce-Bean bill is deregulation, not reform.
The bill also proposes measures to regulate the country's financial system that lawmakers have previously acknowledged does not work. It would authorize the formation of a separate guaranty fund for federally regulated insurers, along with a requirement that federal insurance offices be established in all 50 states. It doesn't recognize that a more comprehensive national system is already in place through the state-based insurance regulatory structure.
If adopted, the Royce-Bean bill would allow self-regulatory industry groups to carry out nearly any function of the so-called national insurance regulator - effectively handing the keys of supervision to those being supervised. Akin to letting the proverbial fox guard the henhouse, this bill essentially would dismantle existing state-based consumer protections.
Throughout the current financial turmoil, the American people have called for strengthened regulatory systems, not the abdication of control to those being regulated. Indeed, Treasury Secretary Timothy Geithner and key Congressional leaders have recommended the elimination of such charter shopping, where the regulated picks its regulator, in financial-reform efforts.
The business of insurance hasn't posed systemic risk to our nation's economy. Oversight of state insurance solvency has kept insurance companies stable and protected policyholders from the worst of the financial meltdown. And state regulators continue to provide a local response to consumer issues without cost to federal taxpayers.
While reforms are needed, the NAIC believes federal and state regulators should work together to continue to protect consumers and promote financial stability. Areas exist that might need federal assistance, but that help should streamline the established state-based regulatory framework, not supplant it with a new federal bureaucracy.
NAIC TESTIFIES ON SYSTEMIC RISK IN INSURANCE
Illinois Insurance Director Michael McRaith testified June 16 on behalf of the NAIC to address the role of systemic risk in insurance, focusing on the inherently compatible role of state regulation in any sound approach to systemic risk regulation.
In his testimony to the U.S. House Committee on Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, McRaith highlighted the fact that insurers' exposure to systemic risk typically flows from linkages to the capital markets.
Noting that the insurance industry has fared better than its banking and securities counterparts in the current economic crisis, McRaith testified, "Insurers' high capitalization requirements and low leverage have kept them from incurring the steep losses faced by other financial institutions." He cited the state guaranty fund system as an essential backstop to protect insurance policyholders in the event an insurance company were to fail.
NAIC NAMES FIRST DISTINGUISHED SCHOLAR IN INSURANCE REGULATION
Mary A. Weiss, Ph.D., has been selected as the NAIC’s first Distinguished Scholar in Insurance Regulation. This appointment signals an increasing commitment toward enhancing research capabilities in insurance regulation.
Dr. Weiss has been the Deaver Professor of Risk, Insurance and Health Care Management at Temple University since 2001. She will play a key role in the Center for Insurance Policy and Regulation, leading the NAIC’s ongoing effort to understand the impact of the current financial turmoil on the insurance industry and its implications for insurance regulation. In addition to engaging other scholars in ongoing research efforts, Dr. Weiss will give presentations and seminars to NAIC members and the industry. She also will establish and manage a research program and host an Insurance Regulation symposium.
During her career, Dr. Weiss has conducted exhaustive research about property-liability insurance, reinsurance and auto insurance, among other areas. In addition to serving as editor of Risk Management and Insurance Review, she has been the Associate Editor of the Journal of Risk and Insurance since 1998. Weiss holds a Ph.D. and Master of Science degree in risk and insurance from the University of Pennsylvania.
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