Intense Lobbying Exempts Insurers from 'Too Big to Fail' Bill

In the fractured U.S. insurance system, more than 50 regulators keep watch on an industry with hundreds of important players. But when these regulators and insurers work together, they are a force to be reckoned with.

That is the backdrop of Connecticut Sen. Chris Dodd's "too big to fail" financial reform bill, which is supposed to ensure that huge financial firms are closely monitored. It looks like the insurance industry will not be included in the bill.

Joined by 11 major property and casualty carriers, who described themselves as "an oasis of relative stability," the National Conference of Insurance Legislators, a group of state legislators who try to keep an eye on what their insurance commissioners are doing, and the National Conference of Insurance Guaranty Funds, have lobbied against being included in the bill. These groups believe that they can do their job without federal help.

The strategy apparently worked. Dodd told the Hartford Courant that "We're not going to deal with insurance in any broad industry way. It's more than the bill can take."

Dodd's reluctance to include insurers in his bill could have something to do with the fact that Hartford is home to much of the U.S. insurance industry, including The Hartford, a large property and life insurer that took a federal bailout of $3.4 billion. Dodd himself would likely say that a lack of Republican support was a key factor for scaling back the bill.

That insurers are escaping more federal supervision is ironic considering AIG's role in the financial crisis. Remember, AIG had thousands of workers' compensation and other policies with state and local governments.