A Message from PIA's President

July 2010

The International Monetary Fund (IMF) just issued an assessment of the financial sectors in the United States and has given our state insurance regulators high marks.

The IMF’s Financial Sector Assessment Program acknowledged the important role that our national state-based system of insurance regulation played in providing strength and stability during the financial crisis. It noted that “strong regulation contributed to the overall resilience of the insurance sector.” The IMF report also acknowledged areas where the NAIC and state insurance regulators are “world leading,” including national data collection and analysis capabilities.

Why is this significant? Because it confirms what PIA and the other advocates of state insurance regulation have been saying all along: that our state based system of insurance regulation is efficient and effective. It protects the financial stability of the insurance sector of the American economy and by so doing, it protects carriers and consumers.

The IMF finding is also important because it undercuts many of the arguments advanced over the years by those who advocate for federal regulation of insurance.

Since well before the financial crisis, these people have pushed the line that state regulation of insurance is hopelessly outmoded, ineffective and inefficient. They told everyone that insurance needed to be regulated like the banks and Wall Street – by the federal government. Former Treasury Secretary Henry Paulson even wanted the insurance industry to be absorbed into a new, global financial services industry.

Well, something happened on the way to that “new world order.” The federal government screwed everything up, leading to the financial meltdown and the resulting bailouts.

But when we looked around at all the financial rubble, we found something interesting – the insurance industry was still standing strong.

Before anyone says, “But what about AIG?,” remember that AIG was brought down by its high-flying unit that traded exotic products like credit default swaps. The insurance operations and reserves of AIG were never at risk – because they were regulated prudently by the states, not ineffectively by the federal government.

There are two sides to this debate. One side – occupied by PIA and those who agree with us – believes that local supervision of our industry is superior to having Washington, D.C. do it. On the other side are the federal advocates who think that bigger is better and everything should be global, not local.

Starting in 2008, we got a real time test of which system performed better. Federal regulation of banks and Wall Street failed. The more conservative approach of state regulation of insurance succeeded.

This hasn’t stopped the advocates of federal-everything from continuing to push their vision. It is a vision that bigger is always better, and that it’s better to have a handful of large global firms controlling much of the insurance marketplace, just like they control much of banking and securities. That this flies in the face of recent experience and common sense should come as no surprise, because those who advocate this course stand to profit handsomely at the expense of the rest of us.

Part of being a fiscal conservative is not removing all financial controls and then letting markets run amok. It does not involve turning everything over to the federal government, much less to the global marketplace.

The best way to make sure that Main Street USA can compete and win is to be a little more local and a little less global. If that makes us old-fashioned, so be it. The old-fashioned insurance industry is still standing. That can’t be said about countless “modernized” firms that forgot that their success depends on serving their customers, not taking their money and betting it in financial services casinos.

We’re all a lot better off when we do business on Main Street.

Jon D. Spalding
President
PIA National