WASHINGTON (Reuters) - In a sign of the rough road ahead for a Bush administration proposal to overhaul financial regulation, state insurance authorities on Monday criticized the plan’s call for a federal insurance regulator.
Calling the proposal “a solution in search of a problem,” a group that represents state insurance commissioners warned Treasury Secretary Henry Paulson against trying to bring more federal power to a regulatory system now run by the states.
“State regulators are glad that someone at the federal level is finally paying attention to the financial crisis facing our nation,” said Sandy Praeger, who is president of the National Association of Insurance Commissioners and the insurance commissioner of Kansas. “However, any change should not put the needs and convenience of Wall Street ahead of the cares and concerns of Main Street.”
Amid a widening housing market crisis and recession fears, Paulson on Monday unveiled a package of proposals to overhaul how Washington polices commercial and investment banks and the financial markets. Several of Paulson’s ideas have been kicking around Washington for years.
One is his proposal to create an optional federal charter for insurers, a long-standing goal of some of the largest competitors among the nation’s more than 6,000 insurers.
States now regulate insurers, forcing companies with national scope to comply with more than 50 different rulebooks. These companies favor an optional federal charter, which would save them money and centralize their lobbying efforts. Under the Paulson plan, companies could continue answering to state authorities if they chose.
Supporters of an optional federal charter include Allstate Corp (ALL.N) and others.
Asked about Paulson’s backing of an optional federal charter, Senate Banking Committee Chairman Christopher Dodd on Monday said: “That’s a matter we’re already talking about up here.”
Legislation for such an approach is pending in the Senate and the House of Representatives, but has gained little support despite persistent lobbying by some of the industry’s biggest firms.
After Paulson’s announcement, the American Insurance Association praised the optional federal charter component of the plan.
“Providing insurers with the option of a single regulator for insurance will benefit consumers and will be more efficient, effective and rational,” said Marc Racicot, president of the group of large property-casualty insurers.
But the National Association of Mutual Insurance Companies, another industry group, said it was “disappointed” because the Paulson plan “recommends a shift in insurance regulatory authority away from the states to the federal government.”
The mutual association’s president, Charles Chamness, said, “One threat to effective insurance regulation is the creation of a dual regulatory structure. The Treasury recommendation for an oversight office and a federal guarantee system appears to be a step toward dual and overlapping regulation.”
Opponents of optional federal charter, such as insurance agents and state regulators, tend to favor keeping a state-based system, but improving it to make state rules and procedures more uniform.
Editing by Leslie Adler