WASHINGTON – The National Association of Insurance Commissioners has “serious concerns” about what is seen as an opaque process for developing global capital standards for large international insurers, the organization’s chief executive officer said.
Former U.S. Sen. Ben Nelson, who heads the NAIC, said the organization has scheduled an Oct. 14 forum at the Brookings Institution in Washington, D.C., to discuss international regulatory developments. Among the topics set to be considered is the recent announcement by the International Association of Insurance Supervisors that meetings where the capital standards are discussed will be invite-only.
That has raised concerns among industry representatives, U.S. regulators and consumer advocates that the public will have far fewer opportunities to weigh in on the standards before they are implemented.
“The NAIC has been actively working toward more transparency in how it conducts business,” Nelson told Best’s News Service. “We see this latest announcement from the IAIS as antithetical to what we have done at the NAIC and what they IAIS should be doing.”
Under the rule change proposed by the IAIS earlier this year, stakeholders would be invited to attend meetings “when necessary” in order to provide comment on specific issues. The IAIS said that would allow the meetings to remain transparent, while becoming more efficient and effective. The rule would go into effect Jan. 1, 2015.
However, the American Insurance Association and the Property Casualty Insurers Association of America submitted comment to the IAIS earlier this month in which they argued that excluding stakeholders from policy discussions could result in rules that do more harm than good (Best’s News Service, Sept. 2, 2014).
Pennsylvania Insurance Commissioner Michael Consedine, who serves as the NAIC’s vice president, told Best’s News Service, that if the IAIS moves forward with its proposed plan to limit access to the meetings, it could affect regulators’ ability to have the standards approved by state lawmakers.
“We’re making the case that a little bit of transparency up front goes a long way on the back end when they’re going to want us to get our general assemblies and legislatures to adopt these standards,” Consedine said. “Many legislators are skeptical of the need for capital standards. If they are skeptical of the process used to develop the rules too, they’re not going to be very likely to adopt them once they are developed.”
Consedine said the NAIC is working with the Federal Insurance Office, the Federal Reserve Board, industry groups and consumer representatives in order to “get everyone reading off the same page” when it comes to trying to get the IAIS to become more transparent.
Nelson added, “Even if you could conclude that not including the industry is OK, which we don’t believe, there is no justification whatsoever for excluding consumers because they’re the ones who will ultimately be affected by the new rules.”
But as they work to find common ground when looking overseas, there remains a rift at home over where the lines of power between state and federal oversight should be drawn.
That debate heated up recently following the Financial Stability Oversight Council’s decision to issue a preliminary systemically important financial institution designation to MetLife Inc.
If its SIFI designation becomes final, MetLife would be the third company to be labeled systemically important. American International Group Inc. and Prudential Financial Inc. have already accepted SIFI designations.
Companies that receive a SIFI designation are subject to additional regulatory oversight by the Fed, including having to meet additional capital standards.
State regulators and industry representatives have come out against the designations, saying that the traditional business of insurance does not pose systemic risks to the U.S. financial system.
Consedine said MetLife’s designation shows a “disconnect” among federal regulators about what their role should be when it comes to overseeing the insurance industry.
Consedine pointed to testimony given by Fed board member Daniel Tarullo during a Sept. 9 hearing before the Senate Banking Committee. Tarullo told lawmakers that the Fed has no plans to begin regulating traditional insurance activities. However, he said it is working to develop capital standards for SIFIs.
“You look at a company like MetLife, where the vast majority of their business is traditional insurance, which has a policy and academic recognition of not being systemically risky. But at the end of the day, they still get that designation for reasons we don’t understand,” Consedine said. “That concerns us because that could have a destabilizing effect on the marketplace and on consumers.”
Nelson said the NAIC will discuss that perceived disconnect during the Oct. 14 insurance forum in Washington.
“We’re currently working on a project called Team USA, in which we are working with the Federal Reserve, the FIO and the states to have a closer relationship,” Nelson said. “As we continue to work together to have some capital standard here at home that respect the state-based system, you’re going to see more of a single voice developing when it comes to capital standards abroad.”
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