An optional federal charter for regulating the insurance industry would be "a horrendous idea," New York's top insurance regulator says.
The current debate over federal regulation of insurance was among many issues that New York Insurance Superintendent Eric Dinallo tackled during an interview with National Underwriter reporters.
While federal regulation of insurance could conceivably work for a line of business such as reinsurance, an optional federal charter would create the same opportunity for regulatory arbitrage as has been witnessed by the banking industry, Dinallo said. There would be a lack of commitment to federal regulation under such a scheme, he explained.
What could work are federal standards in areas such as producer licensing, and product development and registration, and conceivably even solvency standards, he said.
But Dinallo did not agree with the complaint that some insurers or consumers have with state regulation, saying that "these arguments don't seem so profound."
The industry has favored federal oversight because of a belief that it would receive better capital treatment from federal authorities than from state regulators, but with the current financial crisis, that is likely to change, Dinallo said. Mutual insurers are not rushing to embrace federal oversight because they are less concerned about capital treatment, he added.
He also discussed how the National Association of Insurance Commissioners, Kansas City, Mo., could be affected by the move toward federal oversight.
He said that the NAIC cannot be given the authority to regulate insurance under a federal regime, as the National Association of Securities Dealers regulates securities, without legislation to allow it to become a quasi-regulatory agency. When asked whether the NAIC would consider such an option if it meant the organization's survival, he responded, "absolutely."
Dinallo said that the NAIC's current effort to establish an office of insurance information is a good one because Congress wants and needs information about insurance.
"I really don't think it is the camel's nose under the tent," he said, referring to an argument in the industry that an OII would be a first step to federal oversight.
He also disputed the argument that state insurance departments could become regional offices of a federal insurance entity. That would not make sense because it would be a massive agency of over 15,000 employees, not counting consultants to state insurance departments, Dinallo said.
And what would happen when the first auto rate complaint landed on new Treasury Secretary Timothy Geithner's desk? he wondered.
