(March 5, 2009 – Washington, D.C.) — Insurance industry leadership convened in Washington, D.C. on March 4 to address the most critical issues impacting the industry during the sixth annual Insurance Reform Summit presented by Networks Financial Institute at Indiana State University. The Summit featured an industry leadership panel comprised of Steve Bartlett, President & CEO, the Financial Services Roundtable; Charles Chamness, President & CEO, National Association of Mutual Insurance Companies; Governor Frank Keating, President & CEO, American Council of Life Insurers, and Robert Rusbuldt, Chief Executive Officer of the Independent Insurance Agents & Brokers of America, Inc.
Panelists at the Summit addressed some of the most critical issues impacting the industry, beginning with the role of state regulation to the pros and cons of a federal role, the need for a systemic risk regulator and consumer protection in a “too big to fail” world.
“The nation’s recovery will begin with the financial services sector,” noted Steve Bartlett, President & CEO of the Financial Services Roundtable. He stated that the immediate challenge is to stimulate lending activity. Mr. Bartlett said that “big” issues such as the TARP and the American Recovery and Reinvestment Act are dominating Congress’s attention at the moment, reducing focus on insurance regulatory policy. Ultimately, Mr. Bartlett said he expects Congress to create federal regulation for the insurance sector. “A federal charter is virtually inevitable. It is not a matter of whether, but of when, how completely and how well,” he stated.
Mr. Bartlett said that systemic risk is the hot issue in the industry. He said that empowering the federal government with statutory power will be a first step in creating a systemic risk regulator. He also expressed the need for a day-to-day information source for insurance at the federal level.
“An island of stability in a sea of financial turmoil,” is how Charles Chamness described the property and casualty insurance industry. Mr. Chamness’ quote expressed the National Association of Mutual Insurance Companies’ position that the insurance industry has succeeded in a state-regulated environment in spite of the turmoil that has impacted other areas of the financial sector. Regarding the role of a systemic risk regulator, Mr. Chamness commented that NAMIC does not see an immediate need for such a position for P&C companies as that sector has very little systemic solvency risk. Mr. Chamness cited the industry’s lack of leverage, strict capital requirements, adequate liquidity and excellent risk management as factors supporting the industry’s low systemic risk. He further noted that in 2008, the nation’s insurance companies received more ratings upgrades than downgrades.
Regarding the role of a dual-structured system providing insurers with the option of a federal charter, Mr. Chamness stated that such a structure would add expenses for both insurance companies and the policyholders they serve. However, Mr. Chamness did see merit in the role of an Office of Insurance Information (OII). “There needs to be a seat at the table for our industry in Washington,” he stated.
Mr. Chamness expressed concern that the problems of AIG have improperly tainted the reputation of the insurance industry. He further commented that while AIG was widely portrayed as an insurance firm, less than 50 percent of its holdings represent insurance companies.
“A federal presence means a federal voice,” is how Governor Frank Keating, President & CEO, American Council of Life Insurers addressed the issue of a systemic regulator. Governor Keating pointed to the significance of the five trillion dollar life insurance industry to the American economy; noting its presence in 75 million American homes and the industry’s role as the largest buyer of bonds. He gave examples of decision makers knowing very little about the role of life insurance and its contribution to the economy. “Today, we are not regulated [at the federal level]. If we had an optional federal charter, we would certainly be okay. Our industry wants to be a part of solving the nation’s problems and let me add, it’s time to buy annuities!” he said.
“A perfect storm from the macroeconomic perspective,” was how Robert Rusbuldt, Chief Executive Officer of the Independent Insurance Agents & Brokers of America, Inc. (IIAB), described the current financial services landscape. Mr. Rusbuldt said that TARP is irrelevant in an industry comprised of small, independent businesses. “We all agree on the need for more uniformity and efficiency; what we don’t agree on are the solutions,” he commented. He noted that IIAB supports an Office of Insurance Information that would facilitate an industry presence at the federal level. However, he does not see a role for Congress to address solvency and rate issues at the federal level.
Supporting IIAB’s stance that insurance companies should remain state regulated, Mr. Rusbuldt pointed to the different solvency rates of banks versus insurance companies. “In 2008 there were 40 bank failures and one insurance failure. For solvency, our state system of regulation has been better,” Mr. Rusbuldt stated. He cautioned that federal regulation would bring anti-redlining and additional underwriting restrictions to independent insurance companies. “Property and casualty is very different from banks in all respects including claims, distributions and customer service,” he noted.
He indicated that federal legislation is needed to mandate uniformity at the state level. Mr. Rusbuldt said that Congress will focus on systemic risk regulation, but to guess as to what other topics will dominate Congress’s attention would be merely speculative.
Summit panelists shared their thoughts on what the near future will bring to the insurance industry:
“Adam Smith’s invisible hand is out. That was yesterday’s regulation,” was how Governor Keating indicated he sees the future of insurance regulation. He noted that he expects to see aggressive regulatory reform including regulations that will encourage consumer saving.
“Too big to fail can be a dangerous thing,” stated Charles Chamness. Mr. Chamness said he expects Congress to address flood insurance reform by September. Mr. Chamness noted that he does not believe insurance reform is, or should be, a top priority for Congress at this time.
“The states will not reform themselves,” was how Mr. Barlett expressed his sentiment that in 2010, the industry will see some form of regulatory restructuring that includes an optional federal charter. He also noted that he expects the TARP to be expanded to include life insurance companies.
“The establishment of an Office of Insurance Information could serve as an effective back-up to federal regulation,” noted Robert Rusbuldt.
Panelists were asked how the 2008 elections and the financial meltdown will impact the insurance industry.
“Our industry has been vilified by the [problems in the] broader financial services industry,” noted Mr. Rusbuldt. He cautioned that the industry’s reputation can have a demoralizing effect on financial services leadership. He mentioned the 359 companies that received TARP funds as a means of facilitating lending, noting that many financial service leaders were reluctant to accept the funds for their intended purpose.
“It’s business as usual on the P&C side,” was how Charles Chamness described the P&C industry’s functioning in the current economy. While he noted that 2008 saw some surplus loss, he stated that the fact that the TARP was not extended to property and casualty insurers is a positive sign of the industry’s stability. “Our industry suffers from reputation risk when the financial services sector is held in low esteem,” he stated.
“The President needs to continue to talk up the economy,” was Governor Keating’s recommendation for coming out of an economic slump. He also indicated that a lack of under secretaries at the Treasury is making it difficult to initiate movement. “The Treasury needs a full complement of people,” he stated.
“We have gone from de-regulation to re-regulation,” was the concern expressed by Robert Rusbuldt. Mr. Rusbuldt noted that the Obama Administration’s proposals present concerns to small businesses through tax increases, fewer itemized reductions and increased capital gains taxes. “In the midst of a recession, raising taxes on small business owners simply does not make sense,” he noted. He added that the concept of a systemic risk regulator was a misnomer in his estimation and that a better term might be a systemic risk “overseer” who could occasionally “peer into” the industry without day-to-day involvement.
Networks Financial Institute at Indiana State University was founded in 2003 with a grant from Lilly Endowment. NFI strives to facilitate broad, collaborative thinking, dialogue and progress in the evolving financial services marketplace, concentrating on the areas of education, outreach and research. Headquartered in Indianapolis with offices in Washington, D.C. and on the campus of Indiana State, and with outreach internationally, NFI’s goal is to serve as a catalyst for change in the financial services industry.
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