The International Monetary Fund (IMF) has released its assessment of the U.S. economy and resurrected the federal regulation of insurance debate by calling for an “independent national regulator” for insurance.
The IMF report specifically cites non-bank financial institutions such as insurers as posing a systemic risk to the economy because of fragmented oversight and gaps within the regulatory landscape. These gaps “have the potential for delayed responses to emerging risks,” according to the IMF. The report points to American life insurance companies engaging in riskier market behaviors such as taking on more credit for longer periods of time in an effort to “increase yields” and says these behaviors pose “substantial long-term stability risks” to the economy.
The IMF calls for Congress to complete implementation of Dodd-Frank and urges the Financial Stability Oversight Council (FSOC) housed within the Department of Treasury to impose tougher standards on systemically important institutions (SIFIs) already designated by the FSOC. To date, the FSOC has designated four non-bank SIFIs: AIG, Prudential, GE Capital and MetLife. The report also suggests strengthening the FSOC and installing “an independent national regulator” to “ensure consistency in regulation and supervision.”
Recently, a vocal movement has re-emerged to revisit the idea of creating a mandatory or optional federal charter for insurance. In the past, a few large international insurers and life companies have been the main drivers of this concept. To date, a small number of insurers fall under federal oversight because they have been deemed SIFIs or they have a thrift overseen by the Federal Reserve. These companies still remain subject to rigorous state oversight for all of their operations.
The Big “I” has always strongly supported state regulation of insurance and opposed any federal day-to-day oversight of the market. Opposing a mandatory or optional federal charter and educating Congress on the detrimental impact it could have on the market, consumers and its small business members remains a priority for the association.
Jen McPhillips is Big “I” senior director of federal government affairs.
