The head of the National Association of Insurance Commissioners is lamenting that greater federal oversight now in place over insurers such as AIG is fixing something “that isn’t broken,” forcing companies in the industry to deal with federal bank-style regulation when they shouldn’t have to.
Ben Nelson makes his case in a new Wall Street Journal editorial (April 14, 2014 titled, “Dodd-Frank Comes for the Insurers”) that blasts the provisions of the 2010 Dodd-Frank law, which established greater scrutiny over financial institutions that are not banks whose failure could catastrophically disrupt the U.S. economy. That affects insurers such as AIG and Prudential, and any insurer that also owns a savings and loan institution. These companies face Federal Reserve supervision along with state insurance regulation, according to the editorial.
Of course, AIG’s failure in the 2008 economic collapse was one of many major happenings during that time that helped spawn the new legislation. But Nelson wrote that Dodd-Frank misses the point, usurping state insurance regulation inappropriately.
“Calls for bank-style oversight of insurers are especially ironic considering the state-regulated insurance industry served as a model of stability in 2008 when the federal banking and mortgage system collapsed,” Nelson wrote. “The 2008 failure of insurance company AIG is often cited as evidence that insurers need federal overseers, but AIG’s state-regulated life insurance didn’t cause the firm’s downfall. AIG’s federally regulated financial-products division did. State regulators don’t even allow insurance units to make those kind of risky investments.”
Nelson called for getting “insurance regulation right” and warned that the current version of the law could encourage, and not discourage, more risky behavior.