We're Not AIG! Insurers Bristle at Being Charged for 'Systemic Risk'

(MoneyWatch)  Insurers rarely unite on anything, but they definitely see eye-to-eye on a proposed plan by Congress to set up a fund that would provide $100 billion in backup in case of another debacle like American International Group.

AIG's collapse nearly brought down the financial system due to the insurer's inability to provide collateral for its $2.7 trillion risky bet in credit default swaps in September 2008. With a black mark against both Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner, the government had to step in and plug up the hole with a $182 billion bailout. Congress and taxpayers still cringe every time they hear AIG executives demand to keep their million-dollar salaries.

There are now bills before both the House and Senate that would force major U.S. financial firms with over $50 billion in assets to capitalize a "systemic risk" fund to pay in the event of another such rescue.

So why are insurers mad? They claim that siphoning off $13 billion to $14 billion a year and putting it in a bank account would delay or defeat the economic recovery.

But the real reason: their own pockets are being picked. As American Council of Life Insurers spokesman Jack Dolan points out in a BNET Finance interview, of the 73 U.S. financial firms with over $50 billion in assets, 27 of them are insurers.

Insurers would bear an unfair amount of the assessment because many banks - which are regulated by the Federal Deposit Insurance Corporation - would be exempt from the proposal, says Dolan. And insurers already face their own assessments from state funds if another insurer fails, so they see this federal assessment as being charged twice.

It's hard to argue that Wall Street shouldn't prefund its own failures, rather than laying it off on taxpayers, who now face a $12 trillion national debt and 10 percent unemployment, particularly when investment banks like Goldman Sachs are paying more than $16 billion in bonuses.

Why shouldn't insurers pay their fair share, considering that the most massive failure was by AIG, the one-time world's largest insurer?

But insurers have an answer to that one: credit default swaps have nothing to do with insurance, and if AIG hadn't strayed from its core business, none of this would have happened.