Contact:	Clarence Mills (202) 543-1440 c.mills@att.net
For Release:	Immediate News Bulletin PR-38 May 14, 2009

House Subcommittee Holds Hearing on Federal Regulation of Insurance

Members Lack Consensus on How to Modernize Insurance

WASHINGTON, D.C., May 14, 2009 - The U.S. House of Representatives Committee on Financial Services' Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises today held a hearing that addressed how the federal government should oversee the regulation of the insurance industry.

Rep. Paul Kanjorski, D-Pa., subcommittee chairman, opened the hearing with a statement that reflected the growing interest in the federal regulation of insurance. Rep. Kanjorski also indicated that he planned to move quickly on federal oversight legislation for insurers. However, committee member statements clarified that there is limited consensus on how to modernize the U.S. insurance industry.

Witnesses at the hearing included:

• Baird Webel, specialist in Financial Economics, Congressional Research Service;

• Patricia Guinn, managing director, Global Risk and Financial Services Business, Towers Perrin;

• J. Robert Hunter, director of insurance, Consumer Federation of America;

• Martin F. Grace, James S. Kemper professor, Department of Risk Management and Insurance, Georgia State University; and

• Scott Harrington, Alan B. Miller professor, Wharton School, University of Pennsylvania.

Webel's testimony began with a brief description of the current state of the insurance and financial industries. He then differentiated between life and property/casualty insurance and offered seven options for the federal government's role in insurance regulation. During his testimony, Webel said, "Property/casualty companies have generally shunned federal aid, with one industry group arguing strenuously that property/casualty insurers typically do not present systemic risk and the federal government should avoid providing assistance to them."

Webel outlined seven current policy options for Congress to consider:

• Do Nothing

• Create a Federal Office of Insurance Information

• Harmonization of State Laws Via Federal Preemption

• Create a Federal Systemic Risk Regulator

• Create a Federal Solvency Regulator

• Establish a Federal Insurance Charter

• Reform the Complete Financial Service Regulatory System

Grace, an advocate for federal regulation of insurance, also testified at the hearing. He believes that to have an effective system in current times, the federal government must regulate the insurance industry. He said, "In insurance, the focus of regulation has been on the individual company and not on the group or holding company. This needs to change, at some level, to allow for the proper accounting of systemic risk. A state regulator cannot realistically regulate an insurer for its possible systemic effects on national and international markets especially in situations where the insurer within the state is a separately organized corporation from the corporation which might induce a systemic risk issue."

Moreover, Grace explained that an Optional Federal Charter (OFC) system is outdated because it is based on a structure designed in the 1860s.

"Today's problem is not based on regulation of solvency, market conduct or insurance pricing that have been undertaken by the states. It is, instead, the problem of systemic risk which, for the most part, has not been an issue with the insurance industry. Further, systemic risk is of national scope rather than state," he said.

Hunter, also at the hearing, reiterated the Consumer Federation of America's (CFA's) support for the repeal of the McCarran-Ferguson Act. He did outline points for Congress to consider in defense of continued state regulation. He said:

• "While the CFA supports a greater federal insurance role, we vigorously oppose an optional federal charter, since such a system cannot control systemic risk, has failed miserably in protecting banking consumers and sets up pressures that can only lead to reduced consumer protections through regulatory arbitrage.

• "We believe that consumer protection is best accomplished at a government regulatory level close to the people, and we therefore believe that the states should continue to handle consumer protection regulation at this time."

Bob Redding, the Automotive Service Association's Washington, D.C., representative, said after the hearing, "There are members of Congress who want to help us with the federal regulation of insurance and the repeal of the McCarran-Ferguson Act, but collision repairers will have to communicate with their representatives to let them know they support these issues. We encourage collision repairers to join ASA to help advocates for insurance reform succeed."

ASA's collision members will be on Capitol Hill this summer, asking members of Congress to support the federal regulation of property and casualty insurance and the repeal of McCarran-Ferguson. To participate in ASA's Capitol Hill Fly-In, visit ASA's legislative Web site, www.TakingtheHill.com.

To view testimony from the hearing, visit www.TakingTheHill.com.

The Automotive Service Association is the largest not-for-profit trade association of its kind dedicated to and governed by independent automotive service and repair professionals. ASA serves an international membership base that includes numerous affiliate, state and chapter groups from both the mechanical and collision repair segments of the automotive service industry. ASA's headquarters is in Bedford, Texas.

ASA advances professionalism and excellence in the automotive repair industry through education, representation and member services. For additional information about ASA, including past news releases, go to www.ASAshop.org, or visit ASA's legislative Web site at www.TakingTheHill.com.

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