The President's Proposed Financial Services Regulatory Overhaul

The Associated Press is reporting that it has a copy of President Bush's 22 page executive summary of the Bush administration's plan to overhaul the regulation of financial services in the United States. The report follows a similar report from the New York Times on Friday. The Times has posted a copy of the summary on its website this morning.

For fun, your intrepid Business Insurance Guide read through the proposal this morning while drinking his coffee.

The proposal, to be announced by Treasury Secretary Paulson on Monday, addresses all facets of the financial services industries. This includes insurance. The summary starts its discussion of insurance as follows.

"For over 135 years, states have primarily regulated insurance with little direct federal involvement. While a state-based regulatory system for insurance may have been appropriate over some portion of U.S. history, changes in the insurance marketplace have increasingly put strains on the system.

Much like other financial services, over time the business of providing insurance has moved to a more national focus even within the state-based regulatory structure. The inherent nature of a state-based regulatory system makes the process of developing national products cumbersome and more costly, directly impacting the competitiveness of U.S. insurers."

Whoa! Is the Bush administration proposing national regulation for the insurance industry? I thought "nationalized" insurance (such as health care insurance) is taboo. According to the summary, there are "inefficiencies" inherent in state regulation of insurance. The proposal is to set up an optional federal regulation scheme where national insurers could opt to be included.

"Treasury recommends establishing an optional federal charter ("OFC") for insurers within the current structure. An OFC structure should provide for a system of federal chartering, licensing, regulation, and supervision for insurers, reinsurers, and insurance producers (i.e., agents and brokers)."

The proposal envisions the creation of the Office of National Insurance to "regulate those engaged in the business of insurance." There would also be an Office of Insurance Oversight created to address certain national and international issues immediately. These issues include international reinsurance collateral obligations and to insure uniform adoption of the new system by the state regulatory bodies.

This sounds remarkably like some health care insurance reform proposals put forward by the Democratic Presidential Candidates.

Treasury Secretary Paulson will announce the Plan on Monday, March 31, 2008 at 10:00 EDT. His speech will be available for webcast viewing.