by: Fran Matso Lysiak, senior associate editor BestWeek

This crisis has brought national and global attention to the need for strong and transparent regulation — ''and that regulation of the financial services sector must include us,'' Keating said.

Keating, a former governor of Oklahoma, discussed with BestWire the controversial issue of an optional federal charter for the U.S. life insurance industry.

As the federal government, the Treasury Department, Congress and others wrestle with reforming the regulatory system, ''where is the $5 trillion dollar life insurance industry? We are not at that table permanently,'' Keating said. ''The optional federal charter, the Office of Insurance Information, would seek to put us at that table permanently, on an optional basis.''

Most life insurers would remain state regulated, he said. But to tackle regulatory reform, ''you need to make sure that all of these pieces are sitting together, debating together and resolving together as opposed to separately,'' he said.

Federal legislation proposing a federal Office of Insurance Information within the Treasury Department cleared a House subcommittee earlier this year, but became stalled on the House floor in the wake of the Federal Reserve's $85 billion loan package to American International Group. A planned Sept. 17 vote on H.R. 5840, the Insurance Information Act, was withdrawn following concerns voiced by Rep. Jackie Speier, D-Calif., about whether the bill could-preempt California's 20-year-old Proposition 103 regulatory regime (BestWire, Oct. 17, 2008).

Around that time, Keating wrote a letter to Treasury Secretary Henry Paulson, urging him to make the OII ''a reality now.''

Keating said he met with Paulson recently concerning his request ''and the Secretary is very open to what we have suggested.'' He ''obviously knows that as he and Treasury and the other federal regulators work through all of this, the life insurance piece is an integral part.''

When asked about some critics of the industry's longer-term goal of an OFC, who say federal regulation essentially translates to deregulation and lax rules and oversight, Keating responded that the notion of deregulation ''is a myth.'' Sarbanes-Oxley, for example, was ''a very aggressive regulatory statute,'' he said.

When the history book is written about the subprime crisis, it will show a lack of underwriting standards, Keating said. Other factors contributing to the crisis included mortgage brokers who were being paid only if they approved a loan, along with ''easy money,'' he said.

Keating acknowledged, however, ''a lack of regulatory oversight by a number of alphabet soup agencies and the unwillingness of the Congress, and in some cases, the administration, to take action, when action should have been taken.''

He again stressed that most life insurers would remain state-regulated. The option of a national federal regulator would be geared to interstate and international companies and companies that must provide their products to market quickly in competition with banks and securities firms, Keating said.

The answer is an option like banks have, either federal- or state-regulated, he said. ''It works very well for the banks, why not for us?''

There are ''tens of millions'' of people with life insurance, group insurance, annuities, long-term-care and disability income insurance, Keating said. The life insurance industry, ''the long-term savings industry, needs to be at the table,'' Keating said. ''That's what our message has been to Treasury and they have listened, learned and we're going to be there.''

[The entire interview with Keating can be heard in the near future at www.bestdayaudio.com].

(By Fran Matso Lysiak, senior associate editor BestWeek: fran.lysiak@ambest.com)



Copyright: A.M. Best Company, Inc.
Source: BestWire Services
Wordcount: 674