Place Your Bets: Federal Insurance Regulation ... Or Not?

(MoneyWatch)  Members of the National Association of Insurance Commissioners (NAIC) have been patting themselves on the back, secure in the fact that they have once again beaten back attempts to put in a federal agency to oversee their multi-trillion-dollar industry.

In Chicago yesterday, Illinois Insurance Director Michael McRaith told an industry gathering that while "State insurance regulation is under attack ... an optional federal charter won't happen." State regulators naturally oppose any attempt to limit their power.

McRaith spoke on the same day that a House committee voted on an amendment to exempt insurance companies and products from federal oversight. The amendment was part of legislation to create a U.S. Consumer Finance Agency.

But the commissioners shouldn't whoop it up too soon. If President Obama's health care plan is any indication, it's a long way from a House committee vote to passage of a law.

Meanwhile in another part of the House, the powerful chairman of the House Financial Services Committee's subcommittee on insurance was planning his next move. Business Insurance reports that Democratic Rep. Paul Kanjorski from Pennsylvania said on a telephone press conference that several lines of insurance could be "nationally regulated."
As one of the nation's most powerful politicians, Kanjorski is not to be trifled with, and he has a powerful ally in the American Council of Life Insurers. He also has a lot of ground support: the public is still incensed over the American International Group catastrophe, even though it wasn't the fault of state insurance regulators.

Most importantly, Kanjorski knows how to take small bites of the apple instead of swallowing it whole - and choking on it. He is zeroing in on insurance that has experienced the most trouble during the recession: reinsurance, which has been plagued by scandal; bond insurance, where the creditworthiness of major players has plunged, and last, but not least, mortgage insurance.

According to Business Insurance, Kanjorski's bill, the Federal Insurance Office Act, which would create a new federal insurance office within the Treasury Department, could come up for a vote as early as next week by the Financial Services Committee. Maybe NAIC should keep that champagne on ice.