The Blueprint for Regulatory Reform unveiled by U.S. Treasury Secretary Henry M. Paulson Jr. at the end of March revives a controversial proposal discussed three years ago in the aftermath of the Eliot Spitzer investigations into insurance industry practices: federal regulation of the insurance industry.
The industry is currently regulated at the state level, but Paulson has recommended the adoption of an optional federal charter that would allow insurance companies to choose whether they would be regulated by the federal government or continue to be regulated by the states.
As did the original plan three years ago, the proposal has divided the industry. Supporters of the idea include organizations such as the American Council of Life Insurers, The Risk and Insurance Management Society, and the Council of Insurance Agents & Brokers. The proposal for a federal optional charter "is a major milestone in that it recognizes the important role that the insurance industry now plays in this new financial world of integrated and interconnected markets," said Marc Racicot, president of the American Insurance Association, in a statement praising Paulson’s plan.
But other organizations have panned the proposal, including the Professional Insurance Agents of America, the National Association of Mutual Insurers, and the Independent Insurance Agents & Brokers of America. "While there may be some merit in the role envisioned for the Fed to identify and facilitate corrections of systemic problems in the financial services industry, the OFC [optional federal charter] section of the blueprint is clearly swimming upstream,” says Bob Rusbuldt, Big “I” president & CEO, in a statement. “It’s hard to see Congress supporting a proposal that calls for massive deregulation of the industry and a huge new federal bureaucracy.”
The proposals put forward in the Blueprint for Regulatory Reform are not expected to be implemented anytime soon. “This Blueprint addresses complex, long-term issues that should not be decided in the midst of stressful situations and should not be implemented to add greater burden to a market already under strain,” said Paulson in a statement. “These long-term ideas require thoughtful discussion and will not be resolved this month or even this year.” The fact that the proposal has been released in an election year, and that a new administration and Congress will be in place in 2009, also makes the passage of reform efforts unlikely in the immediate future.