It has been decreed unanimously by the House Financial Services Committee that we shall have a Federal Insurance Office. The bill, backed by powerful Pennsylvania Democratic Rep. Paul Kanjorski now goes before the House of Representatives for a vote.
For years, many people, including former New Hampshire Sen. John Sununu and even some big insurers, have been pushing for federal regulation of the industry, saying that the current state-run system doesn't give domestic companies enough leverage in the global market. It also requires any innovation to go through 50 very slow and separate regulatory approvals.
But the current bill won't alter that. What it will do is set up another office in the already office-rich town of Washington D.C.
State regulators, who are joined together in the National Association of Insurance Commissioners (NAIC), have fought against federal regulation of their turf for years. Lately they have proven to be remarkably effective in getting everything they want, so effective that they have even endorsed the toothless Federal Insurance Office.
And why shouldn't they? As the National Underwriter reports, the bill contains specific language which does not grant supervisory or regulatory authority to this insurance office and specifically prohibits it from pre-empting state insurance laws.
So what can this office do? It can request data from an insurer, but only after it checks with state regulators and the NAIC to make sure that the required information is not already publicly available. This is the bureaucratic equivalent of the child's game "Mother, May I."
The rationale for the Federal Insurance Office is to prevent "gaps" in regulation - the kind that allowed American International Group to get in over its head in credit default swaps. But AIG's problems had nothing to do with insurance, as the NAIC will happily tell you. AIG was regulated by the incompetent governing body that oversees savings and loans.
Perhaps Congress could create an insurance "czar" to go along with the more than 30 already in existence. After all it's "czar" for the course.