The Bush Administration has formally endorsed optional federal charters for insurance companies and producers, as well as the creation of an Office of National Insurance. The endorsement comes as part of a plan announced on Monday March 31 by Treasury Secretary Henry Paulson to overhaul the entire federal regulatory structure for financial services. 

The Treasury proposal envisions eventually putting all forms of financial services market conduct under the jurisdiction of a single agency.

Officials of the National Association of Insurance Commissioners (NAIC) and the National Conference of Insurance Legislators (NCOIL) immediately condemned the administration’s move to back an OFC in separate comments from the NAIC’s spring meeting in Orlando. PIA is attending the NAIC meetings.

NAIC President and Kansas Insurance Commissioner Sandy Praeger, in an interview on CNBC Monday afternoon, spoke against the Treasury proposal. She noted that the subprime mortgage crisis occurred under federal regulation, while the insurance industry has remained sound under state regulation.

“Insurance is sold on Main Street and the people who buy insurance products depend on their state regulators to be there for them,” said Praeger. “When you look at the bank regulatory scheme at the federal level, the subprime mortgage crisis occurred on their watch. When you look at the financial stability of our insurance companies, they are experiencing record profits. We have a competitive marketplace. We believe our house is in order and we believe that our system of state-based regulation is working.”

Rep. Brian Kennedy, president of NCOIL, said the only silver lining to the proposal is that a new administration will take office in 10 months. “We will have a new Treasury secretary and all of this will be forgotten,” he said. Speaking at a liaison meeting with state regulators, Kennedy urged action to oppose the Treasury’s proposal. “Now that we have seen this huge push for an OFC, we need to be a united front [in opposition] going forward.” He told the National Underwriter, “the Treasury’s conclusions were not unexpected” because, in doing its research on financial services oversight, Treasury had asked “leading questions in sending out questionnaires.”

The executive summary of the full Treasury proposal can be accessed at www.iiidaily.com/paulson.pdf.

April 1, 2008