Econintersect: The FSB (Financial Stability Board), a global commission charged with determining financial system weaknesses that should be addressed to prevent another global financial crisis, issued a report earlier this week which was very critical of the decentralized nature of the U.S. insurance regulatory regime. (See GEI News 29 August 2013.) The NAIC (National Association of Insurance Commissioners) has responded, vigorously, with statements from the Connecticut insurance commissioner.
The FSB report itemized a number of specific areas needing improvement (see list in GEI News article) and the NAIC response is that the FSB is simply not recognizing that the supposed deficiencies are covered by a process utilizing supervisory colleges.
Life Health Pro quotes Tom Leonardi, the Connecticut Insurance Commissioner who sits on the International Association of Insurance Supervisors (IAIS) Executive Committee and chairs the NAIC’s Financial Stability Task Force:
"...the FSB dismissed what we do well and focused on other things I do not feel are as important."
A further excerpt from Life Health Pro on statements from Leonardi:
"...it was instead a centralized structure that proved to be a failure during the economic crisis of 2008, with the Office of Thrift Supervision (OTS) culpable for a failing AIG’s oversight, while the decentralized insurance regulatory system was the system proving itself hardy. "
Leonardi says the FSB's premise is "absurd". He further said:
“Why go from a system that works and go to one that has failed? It is totally illogical. The other thing is that you have people from the European Union trying to analyze the U.S. That is like a Yankee fan selected to judge the Red Sox."
Leonardi was "disappointed" that the U.S. Treasury accepted the FSB report with supportive language that suggested agreement with the recommendation to increase the authority of the U.S. FIO (Federal Insurance Office) which has had, until now, a limited role in U.S. insurance regulation compared to the state commissioners.
Editorial comment: The response from the NAIC spokesman is a predictable turf protecting reaction. The factors not mentioned in the response would include:
- The system of supervisory colleges is advisory only - there is no authority assigned to the colleges - all authority remains with the individual states.
- The reduction of federal regulatory agency to eunuch status creates a straw man argument. The idea of real financial regulation by federal authority has been utterly destroyed by political action over the past several decades. Of course federal regulation fails when the regulators exercise no authority. Read the extensive writings by Bill Black on this matter.
- The separate insurance departments for each state create artificial barriers to competition within the insurance industry. Regulated competition on a national scale would be much more efficient and greatly benefit consumers. Of course, the profitability of some (most?) insurers would be reduced.
- Leonardi, NAIC slam FSB report on U.S. insurance system (Elizabeth Festa, Life Health Pro, 30 August 2013)
- International Agency: U.S. Insurance Regulation Needs Overhaul (GEI News, 29 August 2013)