The Obama Administration has called for a new U.S. Treasury Department office on insurance, but the president won’t propose federal regulation of the industry as a part of the sweeping financial reform plan laid out on June 17th. The Office of National Insurance, as proposed, would monitor all aspects of the industry and flag any risks that could contribute to a future financial crisis. The Office could recommend to the Federal Reserve that large insurers be subjected to strict capital and risk rules that would apply to large financial holding companies under other aspects of the Obama plan. It also would coordinate industry policy, but it would stop short of being a direct regulator.
As you may know, the nation’s 6,000 insurers are now regulated by state and territorial governments. The industry has been divided for years about changing this. Large life insurers and some large property-casualty firms favor creating an optional federal charter. Many smaller firms, state regulators and other segments of the industry want to keep the present system. I tend to favor keeping regulation at the state level. The Administration’s plan represents limited centralization, and postpones further any final decision on federal oversight.
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