Look out. We are now the target.
Where Congress perceives a gap in regulation, it will fill that
Though you are reading this column in 2009, I wrote it in
2008. So I get confused—is this the end or the beginning?
In all likelihood, the answer is yes.
Yes, we have seen the end of Congressional inactivity in our
sector. For the past several years, all of our issues of
interest have fallen to the bottom of the legislative priority
stack as the focus has swiveled to the tragedy du jour. We are
now the tragedy du jour, or at least a perceived component. The
economic collapse—and AIG’s and other
insurers’ place in that collapse—has now captured
the attention of policymakers and the public alike. Determining
what happened, and how it can be prevented from happening
again, will be priority one with the 111th Congress and new
Yes, we are entering the first phase of what could be a very
quick Congressional process in which we may see a fundamental
reorientation of the financial services regulatory
infrastructure in the United States. The regulatory vacuum
revealed by AIG is the absence of any effective regulatory
oversight of insurance holding companies—at the holding
company level. There is a perceived lack of transparency
regarding the non-insurance activities in which these holding
companies are engaged, such as AIG’s London
credit-default swap activities.
I will make one ironclad prediction here: Congress will fill
that void. Lawmakers may do nothing else, but they will do
that. I will bet on the Federal Reserve as the ultimate
landlord for this holding company regulator. Why? That will
marry regulation of insurance holding companies to the bank and
financial services holding company oversight already conducted
by the Fed. Such a marriage also will help to facilitate the
creation of a true systemic oversight role for the Fed.
Where does that leave surplus lines reform, NARAB 2
licensure reform and/or an Optional Federal Charter (with an
optional federal license for agents and brokers)? Hard to say.
Those proposals are all fully consistent with the holding
company regulator model and fold in very well underneath such
an umbrella structure. The attention on the broader issues and
the legislative proposals that will be sure to follow will
provide opportunities to advance our key reform initiatives.
They will not, however, be the focal point. Part of our mission
must be to ensure that whatever is done can harmoniously
accommodate the regulatory reforms we have long championed.
The end of the Bush Administration’s tax cuts, which
expire in 2010, and the campaign focus on the reformation of
our health care payment system also signal the beginning of
serious legislative efforts as we ring in 2009. As chairman of
the powerful Senate Finance Committee, Democratic Sen. Max
Bachus, D-Mont., who) already has drawn some lines in the sand
with respect to the health care debate. (Interestingly, his
proposal includes potentially promising medical malpractice
liability legal reforms.) The debates over taxes and health
care may run along independent courses, but they also could be
consolidated into a single mega-debate for two reasons. First,
the Congressional committees that own both issues are the
same—Senate Finance and House Ways & Means. Second,
the health coverage debate is, at bottom, a tax debate and one
that involves spending a lot of money. The health care debate
is a natural fit with the review and reassessment of the
broader tax issues given those revenue needs.
In 2009, financial services regulatory reform, health care
insurance reform and tax reform are going to be three of the
four or five primary issues of interest in Washington (with
energy/global warming and, possibly, immigration as the other
one or two). When energy issues are cast as global warming
issues, all of the core primary issues could have enormous
implications for your day-to-day work and for the insurance
industry as a whole for years to come. It now appears clear
that the confluence of a new president, a House and a Senate
with strong Democratic party functioning majorities, and a
recession that is focusing the public spotlight on perceived
ills of the financial services and health insurance industries
will combine to foster some of the change promised by our new
President-elect. I hope we will be able to say yes to that.
Sinder, a partner at Steptoe & Johnson, is CIAB General