by: Mark A. Hofmann

The administration's call to establish an Office of National Insurance within the U.S. Treasury Department neither endorsed nor rejected the idea of an OFC, concentrating instead on six broad principles for enhanced insurance regulation. The financial services regulatory reform white paper, which did not deal extensively with insurance, did, however, criticize the current state-based insurance regulatory system as ''highly fragmented, inconsistent and inefficient.''

The Risk & Insurance Management Society Inc. ''supports the part of the Obama administration's financial regulatory reform white paper which calls for creating an Office of National Insurance within the U.S. Treasury Department,'' said Nikolas Kapatos, chair of the RIMS external affairs committee and senior vp and enterprise risk manager for Sterling Bank in Houston.

''RIMS has supported the concept introduced as legislation by Rep. Paul Kanjorski, D-Pa.,'' he said. ''While the white paper stops short of endorsing a federal insurance regulator, we are encouraged that the administration is neutral on the federal charter and suggests it is one solution to the current fragmented and inconsistent system of regulation at the state level.''

The president of the Washington-based American Insurance Assn., which supports the OFC, hailed the plan.

''The white paper released (Wednesday) recognizes that the property/casualty insurance industry remains significantly hampered by an outdated and fragmented state-based regulatory system that is inherently limited and cannot effectively meet today's global economic challenges,'' AIA President Leigh Ann Pusey said in a statement. ''The white paper supports efforts to modernize and improve the state-based insurance regulatory framework, specifically referencing the federal charter as an alternative. Further, it addresses the need for a strong national policy voice on insurance matters by establishing an Office of National Insurance—a critical step. The ability to develop expertise, negotiate international agreements, and coordinate policy in the insurance sector and with other functional regulators does not exist within the federal government and is absolutely necessary.''

The Washington-based Council of Insurance Agents & Brokers, which also supports an OFC, praised the plan as well.


''The council appreciates the administration's interest in working toward a modernized insurance regulatory system,'' CIAB President Ken Crerar said in a statement. ''We support the proposed establishment of the Office of National Insurance within the Treasury Department, and hope this will serve as the first step toward establishing an optional federal charter, which the administration identifies as one method of reaching the objectives in its proposal.''

David Sampson, president and chief executive officer of the Des Plaines, Ill.-based Property Casualty Insurers Assn. of America, which supports state insurance regulation, said in a statement that the group is ''pleased and encouraged that the administration has focused on the problems of systemic risk and explicitly acknowledged that traditional property/casualty insurance did not cause the crisis in its initial comprehensive financial services regulatory reform proposal.''

Mr. Sampson added that ''PCI supports targeted reforms and agrees with the need to create a federal systemic risk overseer to help ward off future crises in the financial services sector. Property/casualty insurers, who have remained well-capitalized and solvent throughout the current fiscal crunch, do not present a systemic risk and did not cause the existing crisis. Therefore, it is heartening that this plan would not add a duplicative layer of federal regulation at this time to an already successful state system of property/casualty insurance regulation that has served consumers well.''

The Indianapolis-based National Assn. of Mutual Insurance Cos. was somewhat cautious about the administration's plan.

''We appreciate the Obama administration's effort to draft a plan that thoughtfully addresses the tremendously complex set of challenges that confront the U.S. financial system,'' NAMIC President and CEO Charles M. Chamness said in a statement. ''The white paper is appropriately focused on the current and likely future causes of systemic risk, which it identifies as excessive leverage, undercapitalization and insufficient liquidity on the part of some financial holding companies. By pointing to these concerns, the paper implicitly recognizes that property/casualty insurance companies—particularly mutual insurers whose sole focus is the policyholder—have performed exceptionally well throughout this crisis and do not pose a risk to the financial system.''

Mr. Chamness added, though, that ''NAMIC does have concerns with some of the language in the draft paper.''