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Former NAIC CEO Vaughan:“Too Big to Fail” Is Too Big to Exist in Insurance

Former NAIC CEO Therese M. Vaughan shared her views on several hot-button insurance topics at a recent conference sponsored by A.M. Best...
April 10, 2013

Former NAIC CEO Therese M. Vaughan shared her views on several hot-button insurance topics at a recent conference sponsored by A.M. Best. Vaughan addressed systemic regulation and the Federal Insurance Office (FIO), among other issues.

Vaughan credited the American International Group Inc. (AIG) crisis in 2008 for introducing the issue of systemic risk to the insurance industry. “Granted, this was not insurance activity, but AIG was viewed as a large global insurance organization,” Vaughan said. “Our sector has been branded as one that can have systemic risk. The question is what to do with it.”

Vaughan said she believes that “too big to fail” has no place among organizations in the business of risk management. “Let’s not let this problem become a problem in insurance,” Vaughan said. “Once you’ve got the problem of ‘too big to fail’ in your sector, you can’t get rid of it. There’s no known cure for this disease.” The answer to the AIG problem is to reduce systemic activities to non-systemic levels, she said. “If it is too big to fail, it is too big to exist in the insurance sector.”

The former NAIC CEO also offered some observations on the FIO. “I didn’t appreciate how much it was going to be an issue,” she said. “Turf battles are chronic in D.C. Treasury, and other agencies have battles. FIO was complicated by the fact it was brand new. There was a feeling that too much cooperation would diminish the importance of [the] FIO.”

Vaughan added that supporters of federal regulation of the insurance industry saw FIO as a way to further their aim. “They were pushing for FIO to take a more expansive role.” She said under her successor at the NAIC, current CEO Ben Nelson, collaboration could replace competition. “With Ben Nelson coming to the NAIC, there is an opportunity to better clarify the roles of the FIO and the NAIC. If they can get those roles straight, things can work out.”

Vaughan: Heavy-Handed Regulation Creates Its Own Risks (A.M. Best 4/3/13)
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