Workers expect their defined contribution plans to play a greater role in their retirement income than annuities.
The U.S. Financial Stability Oversight Council is moving to "steamroll ahead" with making determinations about the insurance industry and systemic risk without transparent deliberations and without the participation of insurance experts, the chairwoman of the congressional subcommittee on insurance said.
"That's just not right," said U.S. Rep. Judy Biggert, leader of the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity. She spoke at the 7th Annual Networks Financial Institute Insurance Reform Summit.
U.S. Treasury Secretary Tim Geithner was "not reassuring" when he said the appointment of an industry expert to the FSOC as a voting member is coming as is the appointment of a director of the also-new Federal Insurance Office, who would be an ex officio member, said Biggert, R-Ill. In the meantime, the council is continuing to deliberate systemic risk definitions and rules without open meetings or processes, she said.
Biggert also criticized the restrictions on John Huff, the lone insurance voice on the FSOC, who was selected by the National Association of Insurance Commissioners. Huff is the director of the Missouri insurance department. Treasury's position is that Huff represents only his home state. Also, Huff is required to keep FSOC deliberations confidential, to the point that he can only share information with three NAIC employees and no one else (BestWire, Feb. 18, 2011).
"I've heard that his hands are tied," she said. "He's under a gag order."
Leaders of the the NAIC, the National Conference of Insurance Legislators and the industry have strongly criticized federal officials for shutting out the voices of state regulators and insurers (BestWire, Feb. 18, 2011). They fear insurers will be folded in under rules that will be drafted to cover banks and not what makes insurance unique.
"We are a town that's very bank-centric in its approach," said Leigh Ann Pusey, president and chief executive officer of the American Insurance Association. "We need that FSOC appointment."
In January, the FSOC identified six criteria for assessing a nonbank financial entity's systemic importance: size, lack of substitutes for the financial services and products the company provides, interconnectedness with other financial firms, leverage, liquidity risk and maturity mismatch and existing regulatory scrutiny. The draft rule now being deliberated also leaves the council flexibility to "consider any other risk-related factors that the council deems appropriate, whether by regulation or on a case-by-case basis" (BestWire, Jan. 20, 2011).
Federal regulators will be inclined to cover insurance under FSOC rules, said Peter J. Wallison, a financial policy studies fellow with the American Enterprise Institute. No regulator wants to not include an industry for fear of taking blame in case of a future financial crisis, he said.
"I think insurance companies will be covered," Wallison said.
(By Sean P. Carr, Washington Bureau Manager: email@example.com)