2011 0914 - GOV (Senate) - Emerging Issues in Insurance Regulation

  • 2011 0914 - GOV (Senate) - Emerging Issues in Insurance Regulation - Senator Reed (D-RI)
  • (p2) - Senator Jack Reed (D-RI) - Banking and insurance are related, but the insurance industry is fundamentally different, and our approach toward regulators must consider those differences. 

(p9) - Daniel Schwarcz (Law Professor) - The failure of State regulators to provide consumers with sufficient information extends to life insurance markets as well.

  • Perhaps the most notable example is that consumers have virtually no means of comparing prices or costs for the cash value life insurance products that different companies offer. When combined with skewed—and nondisclosed—salesperson incentives, this too has produced distressing results.  

(p14) - Ms. VAUGHAN: The critical importance of this issue.

  • We spend a lot of money on consumer education.
  • We created a Web site, Insure U Web site, for consumers to go to to get information so that they can make some decisions on—they have some understanding of how to look at these issues.
  • We provide some very basic financial information on companies.
  • I think it is a tough one. T
  • here are not any real answers.
  • But educating consumers about the kinds of questions that they can ask, I think, is a start. 
  • (p14) - Mr. WEBEL. I was actually struck in that New York Times article when they talked about the insurance companies themselves setting up captives because that is not what you typically think of.
  • Chairman REED. Right.

(p20) - Ms. VAUGHAN. Senator, thanks very much for raising that subject. I have to say that often what we do at the NAIC we do not talk about a lot publicly,

  • and so while there was a lot of public discussion about stress testing in the banking sector and the insurance sector in Europe, this is something that we have done behind the scenes for some time.  
  • (p25) - Ms. WEISS: One other comment I might make is that it seems that when Dr. Vaughan and Mr. Schwarcz were talking about consumer affairs, it occurred to me that the conversation that was going on was at two different levels.

(p4) - Statement of Baird Webel, Specialist In Financial Economics, Congressional Research Service

The first has to do with the oversight of insurers, particularly from a systemic risk perspective.

Historically, insurers have always been seen as presenting very low systemic risk, and the regulatory system reflected that.

The financial crisis, however, very much challenged this view both with the specific failure of AIG and the
failures of the smaller bond insurers.

And the question that we really faced since then is:

  • Were these failures one-off events that were caused by a specific characteristic of the insurers?
  • Or should these failures really cause us to challenge our previous view that insurers did not present systemic risk?  (p4)

The other issue I think I would like to highlight is what I have termed ‘‘the convergence of financial products,’’...

  • If you look at the economic characteristics of these things, they are pretty similar.
    • But one is produced largely by securities firms, or at least as a securities product under securities rules.
    • The other is an insurance product, and it is regulated by States.
  • The content of that regulation can be very different, and when you look at it in the crisis, I think the outcome can be very different between this different content of regulation. This has happened in several other areas as well.