More gov't oversight of insurance industry?

The Federal Reserve Board has assigned staff to at least three of its regional banks as well as its Washington headquarters to increase its knowledge of how the industry works, and establish quantitative tools to evaluate performance. And, through a provision of the Dodd-Frank Act, the Fed now is the consolidated regulator of insurance companies that operate savings and loan holding companies.

Zaring also said the crisis's aftermath suggested that "the rest of the world is increasingly adopting a different set of priorities" than the consumer protection and contract-law oversight that state law and regulators focus on.

That priority, Zaring said, with Europe as the example, is to ensure the ability of the insurance industry to survive financial shocks, "and the empowerment of a continent-wide insurance supervisor."

He implied that one of the concerns raised by the Treasury report is that the European Union's Solvency II framework, which U.S. insurers criticize, "raises the specter" that Europe may use its solvency rules to keep foreign insurers out of European markets "on the grounds that they are too risky to trust with the money of European consumers."

Zaring added, "That threat, among other things, means that copies of the European approach are taking root across the world."

That isn't consistent with the current U.S. approach, Zaring said. "… keeping pace with Europe doesn't work well with the American system of insurance regulation, where the federal role is minimal and each state has a different regulatory scheme," he said.

Zaring noted that that this is where the Treasury Department's call for a stronger role in insurance regulation, "something that the largest insurance companies would like to see, makes sense."

Zaring makes clear that a "stronger," but not necessarily "exclusive" role for federal regulation is what the FIO report suggests.

See related: FIO report: The hinge on insurance regulation

He said the FIO report did not urge the repeal of the McCarran-Ferguson Act, and that the report "seemed happy to let the state court systems and insurance commissioners take the lead on policy payout disputes, market conduct regulation and the like, though it did urge the states to try to develop a consistent approach to these matters."

Zaring said that foreign insurance regulators "have consistently complained" about the difficulties of doing business with their disaggregated American counterparts. "But given the long history of state-based insurance regulation, there could be some logic in the Treasury report's recommendation that federal-state cooperation be embraced," he said.

Zaring suggested that states might continue to perform the consumer-protection role, which, he said, "has never been a strength of federal-financial regulation."

The federal government could then worry about overall systemic stability, and "perhaps some nationwide insurance markets where it makes little sense to give the states a role."

Zaring said the "division of labor" advocated in the FIO report, might, if implemented, "make it possible for the United States to keep up with its international counterparts in thinking about the stability of insurance companies."