Consumer Group Urges Congress to Curb Insurers’ Risky Behavior
The Consumer Federation of America said Congress should consider prohibiting insurance companies from engaging in “risky non-insurance practices.”
The group said Congress should consider restrictions similar to those of the Glass-Steagall Act, which prohibited commercial banks from riskier, highly leveraged investment banking activities.
“The best way to avoid systemic risk is not through a systemic regulator. The best approach is to limit the activities and size of the insurer to avoid any danger of systemic risk,” Travis Plunkett, legislative director with the consumer group, told a congressional panel.
The Senate Banking Committee held a hearing Tuesday to examine the Obama administration’s plan to overhaul the country’s financial regulation.
Although the government was forced to use billions of dollars in taxpayer funds to prop up American International Group Inc, the Obama administration stopped short of taking a hard line on the insurance industry.
The administration has proposed creating an office of national insurance that would fall under the auspices of the Treasury Department to monitor all aspects of the insurance industry. It would act as a hub for federal information and surveillance.
Witnesses at the congressional hearing agreed that this was needed but said more had to be done.
Hal Scott, a professor of international finance at Harvard Law School, urged creation of an optional federal charter for insurers, so that insurers could opt to be overseen by the federal government.
The country’s 6,000 insurers are currently regulated by state and territorial governments and have been divided for years on whether they should be supervised nationally.
Lawmakers expressed unhappiness with the administration’s proposal. The top Republican on the panel, Richard Shelby, said the national insurance office had merit but said it was not comprehensive reform.
The crumbling of the largest bond insurers and the spectacular failure of AIG “reveal that comprehensive insurance regulation must be part of our reform effort,” he said.
Once the world’s largest insurer, AIG has received more than $80 billion in federal loans in successive bailouts since its near-collapse last September. In total, U.S. taxpayer aid of up to $180 billion has been extended to keep the company afloat. (Reporting by Rachelle Younglai, editing by Matthew Lewis)