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Treasury Releases Financial Services Regulatory Blueprint; NAMIC Disappointed with Plan

WASHINGTON (March 29, 2008) – The Department of the Treasury is poised to release its blueprint for reform of the regulatory structure of the nation’s financial institutions. Release of the blueprint follows the request for public comment in November 2007 and is designed to develop a regulatory structure to “improve efficiency, reduce overlap, strengthen consumer and investor protection, and ensure that financial institutions have the ability to keep pace with evolving markets.”

The Treasury blueprint recommends a shift in insurance regulatory authority away from the states to the federal government. “NAMIC urged Treasury to focus on the philosophy and execution of regulatory objectives; however, the blueprint focuses more on consolidation of regulatory authority,” said Charles M. Chamness, NAMIC's president and CEO. “The inefficiencies in the insurance marketplace are less the result of the current functional regulatory framework than the philosophy and execution of the regulatory objectives.”

NAMIC members support insurance regulatory reform and Treasury’s goals of efficiency, innovation, consumer protection, and avoidance of regulatory overlap. “These goals can best be achieved by a rationalized regulatory structure for the 21st century that focuses on adoption and implementation of competition-based models for operation and regulation,” Chamness said. “The greatest costs imposed upon the insurance marketplace come less from multiple jurisdictions or overlapping regulatory authority than from the regulatory structure itself in the form of price and form regulation.”

In addition to calls for creation of an optional federal charter for insurers, the Treasury report recommends the immediate establishment of an Office of Insurance Oversight within the Department of Treasury and the longer-term formation of a Federal Insurance Guarantee Fund. “One threat to effective insurance regulation is the creation of a dual regulatory structure,” Chamness said. “The Treasury recommendation for an oversight office and a federal guarantee system appears to be a step toward dual and overlapping regulation.”

The Treasury report also recommends a long-term move toward consolidated financial regulatory authority focused on objectives-based regulation. NAMIC supports regulatory flexibility, but cautioned Treasury that any move toward objectives-based regulation must be accompanied by careful attention to legal and operational issues to ensure that there is adequate legal certainty and that the regulation replaces rather than adds to existing regulations.

As Congress considers Treasury’s recommendations for financial services regulatory reform, NAMIC encourages lawmakers to recognize that:

  • Insurance significantly and fundamentally differs from other financial services and requires distinct regulatory treatment;
  • The insurance industry is not a monolith, and that property/casualty insurance is inherently local in nature with a high degree of interaction between state law, geographic conditions, demography and other local factors;
  • Fundamental insurance regulatory reform must focus on elimination of price and form controls, underwriting restrictions, and unwanted coverage mandates, as well as unifying and streamlining producer and company licensing requirements and limiting arbitrary and redundant market conduct examinations;
  • There are a variety of approaches to achieve regulatory consistency, including domiciliary deference, interstate compacts, and model laws and regulations;
  • Financial regulatory oversight must acknowledge and apply fundamental business legal protections, including confidentiality and privilege provisions, due process, trade secrets and self-evaluative audits; and
  • The discretion of third-party contractors must be limited, and privilege and confidentiality of documents accessed by these third-parties must be preserved.

Posted: Saturday, March 29, 2008 12:00:00 AM. Modified: Saturday, March 29, 2008 6:39:04 PM.

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