WASHINGTON (Reuters) - Outrage over bonuses to employees of taxpayer-rescued American International Group dominated a Senate Banking Committee hearing on Tuesday where other insurers were renewing a call for creation of a federal regulator.
The $165 million in bonuses, about half to the financial products unit at the heart of AIG’s woes, has sparked anger amid a $180 billion taxpayer bailout.
“The only reason that they even have a job is because of the taxpayers,” said Senator Jon Tester, a Montana Democrat.
Committee Chairman Christopher Dodd said he too wanted answers on bonuses, but said AIG’s problems were not representative of the broader industry.
“What happened at AIG should not, in my opinion, be confused with the industry with which it is most closely associated, the insurance industry,” said Dodd, a Democrat from Connecticut.
Dodd demanded details from the Federal Reserve on how it has been tracking executive bonuses at companies receiving federal bailout money.
Meanwhile, U.S. insurers renewed a call for Congress to create a federal regulator that could end a jumble of disparate state insurance regulations, but also warned against excessive oversight by a broader systemic regulator.
William Berkley, chairman of the American Insurance Association, a group of 350 property-casualty insurers including Travelers Cos Inc and Chubb Corp and Ace Ltd, endorsed the creation of a federal regulator to oversee the industry.
Berkley also sought to distinguish the industry from the broader financial sector leading to today’s financial chaos.
The insurance industry “does not pose the same types of systemic risk challenges as most other financial services sectors,” Berkley said.
Lawmakers are considering whether to provide an optional federal charter for insurance firms, similar to the nation’s dual banking charter system.
Insurance companies are now regulated by states, most of which set insurance rates. Previously proposed legislation would have allowed insurance companies to set their own rates if they were federally chartered.
Critics of this approach, including consumer groups and state regulators, fear a federal charter could result in higher rates and chip away at consumer protection.
Insurance firms say an optional federal charter would allow them to better compete overseas and help create innovative products.
Separately, lawmakers are mulling giving the Federal Reserve broad oversight powers to identify and monitor systemic risk throughout the financial system.
Frank Keating, president of the American Council of Life Insurers, said any systemic regulator must be careful not to disrupt the market and urged avoidance of a “bright line definition of systemic risk.”
Keating’s group represents life insurers including Hartford Financial Services Group, Assurant Inc and Lincoln National Corp.
Additional reporting by John Poirier; Editing by Tim Dobbyn