The proposals unveiled Monday, March 31, 2008 by Treasury Secretary Paulson are being billed as a strengthening of financial services regulation designed to prevent future crisis, such as the subprime mortgage meltdown. But in reality, what is actually being proposed for insurance is more deregulation under the guise of strengthened regulation. The Treasury’s blueprint is fatally flawed.

The insurance sector has largely escaped the turmoil that has afflicted banking and securities as a result of the subprime mortgage crisis. One reason for this is that insurance is regulated effectively by the states. The subprime mortgage debacle was largely the result of the failure of federal regulators to exercise proper supervision of lending and investment practices. Because the business of insurance is regulated by the states, not the federal government, and the states did their job well, the insurance industry has remained fiscally sound during this crisis.

Now, the Treasury is proposing to begin to transfer insurance regulation to the federal government as part of a series of proposals that it says will strengthen regulation and prevent future financial meltdowns. But the track record of federal regulation proves otherwise. Why should insurance regulation be taken away from state regulators, who have succeeded in their duty to protect the fiscal soundness of our industry and be turned over to federal regulators, who failed to prevent the subprime mortgage meltdown?

Or, as NAIC President Sandy Praeger puts it, “Our house is in order.”

April 1, 2008