Treasury sees expanded federal role in insurance regulation

McClatchy Washington BureauDecember 12, 2013 

AIG logo in New York City.


— Pointing to the near-collapse of finance that followed the government takeover of insurance giant American International Group Inc., the Treasury Department issued a detailed report Thursday calling for a federal role in regulation of insurance markets and tougher state policing of the industry.

The report was released by Treasury's Federal Insurance Office, created in the 2010 revamp of financial regulation. The legislation, short-handed as the Dodd-Frank Act after its authors, also called for a comprehensive look at the sector and recommendations, presented Thursday.

Although AIG was an insurance company, it had vast financial operations, many of them overseas in London that largely escaped U.S. regulation. The seizure of AIG to prevent its collapse in 2008 was one of the many dramatic events in the breathtaking crisis whose only parallel was the Great Depression.

Insurance is now regulated on the state level, and quite spottily at that. But the sector is an important part of the U.S. economy. The report said the industry directly employs about 2.3 million people_ about the size of the entire civilian federal government, or about 1.7 percent of non-farm payrolls. Insurers of life and health policies, and property and casualty policies, reported assets at the end of 2012 exceeding $7.3 trillion.

The new office called for the development and implementation of federal standards and oversight for mortgage insurers, and called for an international agreement governing parts of the reinsurance market. Reinsurance involves an insurance company buying policy from  third party to cover the possibility of losses on policies it has written.

States can do a much better job in regulating for safety and soundness of insurers, the report said, stressing the importance of best practices and uniform standards for assessing the solvency of insurers and determining whether they have adequate capital in the event of large losses.

"The absence of uniformity in the U.S. insurance regulatory system creates inefficiencies and burdens for consumers, insurers, and the international community," the report said, noting that state-based regulation costs 6.8 times more per dollar of premium for a U.S. insurer than for one operating in Great Britain under national regulation.

In a controversial move the Federal Insurance Office also waded into the thicket on the issue of gay marriage.

"States should assess whether or in what manner marital status is an appropriate underwriting or rating consideration," the report said.

Effectively what the Treasury Department office was warning about is discounts given to policy holders that are married. These discounts may now be applied unevenly since some states recognize same-sex marriage while others do not.

The report also called for a state and federal partnership in creating personal auto insurance policies for U.S. military personnel that are enforceable across state lines. This is important because military families are frequently transferred and policies don't always travel with them.

The new office will also consult with tribal leaders on sovereign Native American and Tribal lands to improve access to and affordability of insurance to this underserved population.



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