Tuesday, April 21, 2009

Your Serve

AIG is the latest ping pong ball in the public relations match for advocates to make the case for federal or state regulation. The most recent match started when Tom Wilson, Allstate Corp.’s CEO made the case in The New York Times op-ed piece. Wilson wrote that the credit default swaps written by AIG are insurance and that it is surprising to argue that insurance did not contribute to the recent market failures. Wilson says that a new regulatory structure is needed and that the way to do it is “to eliminate the hodgepodge of state regulatory systems by establishing a federal regulator for national insurance companies.” Wilson also calls for a federal agency that would be empowered to deal with any large failing institutions.
Illinois Insurance Director Michael McRaith responded by noting “the myth-laden pleas of an otherwise prudent Tom Wilson…” McRaith returns the volley by reminding Wilson and those reading his response that state regulators enforce “rigorous” solvency standards by using “stringent stress-tests and capital requirements.” He also notes guaranty fund protections. McRaith also notes state insurance regulators welcome a collaborative effort to fill any gaps in regulating systemic risk. This viewpoint was voiced by NAIC President Terri Vaughan during a Congressional hearing in March.
What is needed is less rhetoric and more focus on the consumer. Is there any proof that a federal regulator will do a better job monitoring companies and thus, protecting consumers? Large banks weren’t reined in when they loaded up on toxic mortgages. At least insurers had a model investment law in place to create guardrails for what companies could invest in. Congress had to jump in and increase the amount of coverage on bank products.
State regulators can continue to strengthen their argument that they better serve consumers by listening carefully to consumer advocates. One of many opportunities will occur on April 30 when the National Association of Insurance Commissioners, Kansas City, Mo., holds a public hearing on credit-based insurance scores. Their most reasoned and their strongest argument for state regulation is their proximity to the people who need them most: the consumers.

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