US Government Should Mandate Federal Charter For Some Insurers
Experts
By Darrell A. Hughes, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- Academic experts Tuesday said the Obama
administration's plan to modernize the U.S. insurance sector should include the
creation of a federal charter that would be mandatory for some insurers as
determined by the government.
Some larger insurance firms, because of their activities, might need to be
federally regulated, said Martin Grace, who is associate director of Georgia
State University's Center for Risk Management and Insurance Research.
Grace testified before the Senate Banking Committee. The hearing held by
committee Chairman Chris Dodd, D-Conn., addressed how the insurance sector could
be better regulated and modernized. Hal Scott, professor of international
financial systems at Harvard Law School, was among others who testified.
At issue is the question of to what extent a possible federal charter for the
sector should be optional. Insurance companies currently are chartered on the
state level.
The option of operating under a federal charter would establish a system of
regulation and supervision for insurers similar to the banking regulatory
system.
The Treasury Department last week unveiled legislation detailing the
administration's regulatory overhaul plan, which includes the creation of a
national insurance office that would be housed within the department. This
office could handle ways to address systemic risk in the insurance sector. The
plan, however, didn't propose the creation of a federal charter for insurers.
Grace asked the government to take into consideration the scope of insurers
that might not opt for a federal charter, such as those with interstate or
international operations. The government should have the power to examine a
firm's activities, complexity and market involvement, and then determine whether
it should be federally chartered, he said.
Scott of Harvard Law School suggested that lawmakers further explore mandatory
chartering and regulation for larger firms, while keeping a national charter
optional for some large and smaller insurance companies. He also said that some
large insurance firms that might become federally chartered under a broad
mandate may not pose real systemic risk.
Dodd said modernizing the insurance sector and exploring all ideas are
imperative as "insurance companies have become more global and more complex."
"And even though the insurance industry did not create the economic crisis,
like almost every other industry it has been hit hard, and as a result many are
calling on us to modernize regulations," he said.
Dodd later added, "It's important we get this right."
-By Darrell A. Hughes, Dow Jones Newswires; 202-862-6684; darrell.hughes@
dowjones.com
(END) Dow Jones Newswires
07-28-091501ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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