Terri Vaughan, the incoming chief executive of the National Association of Insurance Commissioners, has backed a recent GAO report recommending that Congress consider an optional federal charter for insurance regulation.
"I agree [with the recommendation]," she said at her introductory press conference Jan. 15.
The Government Accountability Office report, released Jan. 8, stated: "Congress could consider the advantages and disadvantages of providing a federal charter option for insurance and creating a federal insurance regulatory entity."
"They have considered an optional federal charter in the past," Ms. Vaughan said. "There are a lot of proposals around," she said, adding, however: "State regulation plays an important role in protecting consumers."
Ms. Vaughan also indicated that she doesn't support a federal regulator that would oversee life insurers only, an option some have suggested.
Some in the industry, including the American Council of Life Insurers in Washington, want the option of being regulated by a federal agency, saying that there needs to be one agency supervising their businesses in order to bring products to market quickly and to coordinate agent licensing better. Insurance is regulated only by states, creating a patchwork of regulations across the industry.
Although life insurance is more uniform nationwide, property-casualty insurance is regulated differently among states.
"I've struggled with that [disparity]. Given that you have so many insurance groups that have non-life and life insurance operations, it's not clear to me how exactly that would work," Ms. Vaughan said.
The GAO report, "A Framework for Crafting and Assessing Proposals to Modernize the Outdated U.S. Financial Regulatory System," was sent to Congress to serve as a guide for reforming financial services regulations.
The GAO has "through the years noted difficulties with efforts to harmonize insurance regulation across states through the NAIC-based structure. The establishment of a federal insurance charter and regulator could help alleviate some of these challenges, but such an approach could also have unintended consequences for state regulatory bodies and for insurance firms as well," the report said.
The GAO's call for consideration of federal insurance regulation adds to the voices supporting debate of the issue. Last year, the Department of the Treasury also supported the idea of optional federal regulation of insurance in its "Blueprint for a Modernized Financial Regulatory Structure."
A number of industry organizations that oppose an optional federal charter reacted with alarm to the GAO report's statement on the issue.
"The state-based insurance regulatory system has protected the assets of the insurance affiliates," said Nancy Grover, spokeswoman for the National Association of Mutual Insurance Companies, which represents about 1,400 property-casualty insurers, most of which are mutual insurance companies. NAMIC, which is headquartered in Indianapolis, opposes an optional federal charter for insurance.
"You don't find property-casualty companies' being insolvent right now," Ms. Grover said.
CREDIT DEFAULT SWAPS
Products such as credit default swaps, a huge unregulated market, are most in need of federal supervision, she said. "They're not insurance products, but clearly, somebody needs to regulate credit default swaps," Ms. Grover said.
The ACLI issued a statement saying that it "appreciates GAO's recommendation that Congress consider creation of an optional federal charter for insurance regulation as part of a broader examination of financial regulatory reform in the United States. The ACLI plans to present its perspective as Congress considers regulatory reforms, the statement said.
Ms. Vaughan will be working in Washington, where the NAIC is moving its headquarters.
The organization is based in Kansas City, Mo., where it has 377 employees. An additional 48 employees work in the organization's New York office.
The Washington office has 16 employees, but Ms. Vaughan said that she isn't sure how many more staff positions will be added there.
Ms. Vaughan, who assumes the position Feb. 18, was formerly the insurance commissioner of Iowa and a past president of the NAIC. Most recently, she was a professor of insurance at Drake University in Des Moines, Iowa.
In her opening press conference, Ms. Vaughan reiterated the NAIC's support for creating an office of insurance information, which would serve as a source of information to the federal government concerning the insurance industry. The Washington headquarters of the NAIC will establish the Center for Insurance Information, NAIC president Roger Sevigny, who is insurance commissioner of New Hampshire, said at the press conference.
E-mail Sara Hansard at email@example.com.