Florida Insurance Commissioner Kevin McCarty today released comments in response to recent opinions offered, in the wake of the financial issues of the American International Group (AIG), that insurance regulation should be moved to the federal level.

Commissioner McCarty believes that insurance regulation has been successful at the state level and should remain as a state regulatory function.

“I am very concerned and deeply troubled by U.S. Treasury Secretary Henry Paulson’s comments on Sunday’s NBC program Meet the Press as well as by comments from various trade associations suggesting that the current AIG saga reinforces the need for a federal office to regulate insurance companies,” said McCarty.

“Mr. Paulson has done a heroic job of stabilizing the financial markets in recent weeks; however, the facts of the matter regarding the AIG crisis clearly highlight that the state-based system of insurance regulation employed in the United States has actually worked in this case – as it has in the past and will in the future – to lessen the systemic impact of financial distress in the world financial markets,” McCarty said.

Insurance Assets Were Not Co-mingled, Thanks to State Regulation

McCarty pointed out that the state-based system of insurance regulation ensured that the insurance operating companies within AIG were solvent and financially strong entities, fully capable of paying policyholder claims.

The Florida commissioner noted that “currently there is a sentiment developing that an approach that views all parts of these complicated firms as one single entity with a common source of capital would be preferred to the current system of functional regulation.”

“Notice, though, that under the proposed system, the hundreds of thousands of policyholders who rely on AIG insurance companies would have been at significant risk as all of the insurance assets would have been co-mingled to pay for the damage created by the non-insurance entities,” he said.

“With clear objectivity, the study of the current AIG crisis will, I am sure, demonstrate that the state-based system of insurance regulation provides for a framework in which insurance companies operate in a financially prudent manner and in which policyholders can rely on the promises made in the insurance contracts they buy.”

Read Commissioner McCarty’s complete remarks here.

September 24, 2008