I'm at a banking conference in Hong Kong, but noticed that the Treasury Department has urged a greater federal role in the regulation of insurance in a long-awaited report issued by its Federal Isurance Office. It's a role that the large insurance firms, always unethusiastic about 50 state regulation, would no doubt welcome. Some observations:
- The report does not seek to end state insurance supervision, but would like some direct federal regulation of the sector (for example, for mortgage insurers), and the capacity to threaten states with supplanting regulation if the states do not shape up in various ways.
- The report justifies the need for a federal role in part on the internationalization of isurance, and, to some degree, through IAIS, the internationalization of insurance regulation.
- The rationale for state supervision is that insurance doesn't really need to be regulated for capital adequacy (but see AIG), but rather for consumer protection (your policy doesn't pay out, you get sold insurance you don't need).
- This, like the Volcker Rule, is a product of Dodd-Frank, which created the FIO.
- A report is, as a matter of law, meaningless. Indeed, Congress would have to act to give the FIO some of what it wants.
A wrap on the report is here. It will be interesting to see whether this lands with anything more than a thud.
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