New Federal Insurance Office's Role Debated

Participants at a Treasury Department panel on insurance regulation Friday offered divergent opinions about the role the new Federal Insurance Office should play.

Consumer advocates pointed to perceived gaps in the current regulatory system, while industry representatives complained about what they called duplicative and burdensome rules from the 50 states that serve as their main regulators.

Yet most of the speakers said the current system does well at ensuring that insurers stay solvent. They cited the small number of insurer failures stemming from the 2008 financial crisis relative to the troubles faced by other financial firms.

The panel is part of an effort by the director of the insurance office, Michael McRaith, to solicit input for a report to Congress on how to modernize and improve insurance regulation.

The report, due in January, was mandated by the Dodd-Frank Act, which also created the insurance office.

McRaith, who was appointed to head the Federal Insurance Office earlier this year, was previously a state regulator himself. He spent six years as director of the Illinois Department of Insurance.

John D. Johns, chief executive of life insurer Protective Life Corp., complained that the "current system is highly inefficient," while Markham McKnight, the head of the insurance agency within BancorpSouth Inc., said the process of being licensed to sell coverage in multiple states is "complicated, redundant and [an] unnecessarily costly quagmire."

McKnight called for a national registry to ease licensing requirements, while Johns proposed a "passport" system for insurance companies, overseen by the Federal Insurance Office, which would allow them to operate in multiple states while being regulated by one.

Daniel Schwarcz, a professor at the University of Minnesota Law School, said such a system would encourage a "race to the bottom."

"You can't have any system in which regulated entities have any choice over their regulators. That, to me, is one of the No. 1 lessons of the financial crisis," he said.

"The best approach," Schwarcz said, "is a hybrid approach … where there is no choice and where the federal government uses pressure to make sure the states act."

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