During the past two weeks, I spoke with most of the major insurance organizations regarding the implications for insurance companies of the financial reforms that President Obama signed into law Wednesday. Their mood was far from celebratory but their sense of relief was palpable. Simply put, big insurance dodged a bullet.
Let's look at that scorecard again:
Preserve state -- and only state -- regulation of the insurance industry? Check.
Strip the newly-created Federal Insurance Office, or FIO, of any significant regulatory powers? Check.
Exempt insurance from oversight by the newly-created Consumer Financial Protection Bureau? Check.
Congress even threw in a gimme by finally passing the Nonadmitted and Reinsurance Reform Act, a shopworn bill streamlining the reinsurance and surplus lines insurance industries that had made more trips up the Hill than Sisyphus.
Heck, with a scorecard like that, big insurance could have placed in the British Open. So why the sour faces? Three letters: AIG.
Had it not been for AIG, the "too big to fail" insurance giant whose rapacious financial products division brought about its downfall in 2008, the insurance industry might have been spared this particular walk to the woodshed. Though their punishment, if you can call it that, was mild compared to the blows delivered to banks and investment firms, nobody likes to be called on the carpet for something they didn't do, in this case precipitate a near-apocalypse of the Western financial world.
Charles Symington, senior vice president for Government Affairs of "Big I," aka: the Independent Insurance Agents and Brokers of America, admits, "It could have been worse." Big I made perfectly clear that it did not, does not and will not endorse the bill, ever. It's already gearing up for a 2011 Congressional showdown over Optional Federal Charter, which would create a federal regulatory system in addition to the state system, similar to the banking industry. Big I's not keen on the idea.
Terri Vaughan, the CEO of the National Association of Insurance Commissioners, prefers to see the FIO as an example of how the feds and states might play together nicely. "The FIO could be a very good thing. It could also be a problematic thing. It just depends on how it gets used," she says.
"There's not a lot to love about this piece of legislation," admits Stef Zielezienski, senior vice president and general counsel of the American Insurance Association, which represents property/casualty insurance companies. But he knows that the devil and the details are up ahead. "Stay tuned, because it's going to take a few years to figure all of this out," he reckons. "It's the end of the beginning."
What do you think? Did big insurance get off with a slap on the wrist? Should insurance have been subjected to the scrutiny of the Consumer Financial Protection Bureau? And the biggie: Should insurance be federally regulated?
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