Here’s a dynamic shift – in Washington, insurers are desperately arguing they are NOT IMPORTANT.
What forces of heaven and earth could cause massive insurance corporations to shy away from the spotlight? On a regular day in Washington, there are numerous (and persistent) insurance industry lobbyists actively vying for the federal government’s attention. What caused such a dramatic about-face?
Washington is gearing up to regulate insurers who are classified as “systemically important”. An insurer will be labeled systemically important if it plays a role in the smooth running of the financial industry.
After the near failure of mega-insurer AIG during the banking crisis, the federal government turned a wary eye toward the insurance industry. The insurance industry, like the pre-crisis banking industry, is largely unregulated by the federal government. Insurance has been traditionally regulated by the states. Depending upon which state a consumer lives in, this can either be a very good thing or a very bad thing. (I could elaborate on this for hours, but that’s a topic for another blog post…)
Naturally, after the disastrous recession brought upon us by the banking industry, and the closely interwoven relationship the insurance industry shares with banking and finance, legislators are a little nervous. No one wants to be held responsible for another massive crash of the economy, especially when it could be easily foreseen and prevented.
Once legislators determine which insurers are “systemically important,” they will subject them to tighter federal and international regulations, a la the current regime applied to the banking industry. Insurers are balking at this possibility, and frantically arguing that they are so different from banks that it doesn’t make sense to apply any extra federal regulation to them, even going so far as to claim they can only be categorized as victims of the banking crisis, just like the rest of us. Naturally, the reality is far more complex.
UPDATE, June 2, 2014. Insurers deemed “systemically important” are:
3. General Electric Capital Corp.
- Shields and Holvey take on the insurance industry (blueoregon.com)