AIG failure doesn’t justify federal charter for insurers

Some industry proponents of an optional federal charter (OFC) for insurance have used the failure of AIG as an argument for their misguided proposal. This proposal is inherently dangerous to American consumers.

Are we to believe that a company such as AIG being able to choose how it is regulated through an “optional” federal charter would have prevented this situation? Are we to believe that pitting one regulator against another in a contest to be chosen by the regulated company would do anything but lead to a race to the bottom and lessen consumer protections?

While the failure of AIG is indeed a huge shock to the financial services industry, state insurance regulation and AIG’s insurance subsidiaries bear no responsibility for its collapse. Instead, AIG’s problems are related to its involvement in and pervasive use of credit default swaps. AIG’s core insurance business isn’t to blame for its problems, and the failure of the company shouldn’t be used as an excuse for wholesale revamping of insurance regulation. In fact, AIG’s state-regulated insurance entities are stable, profitable and paying all claims.

State insurance regulators actively monitor the U.S. insurance entities for potential financial trouble and have many different tools to help insurers navigate adverse market developments.

In addition, the state system utilizes a very effective safety net, the state guaranty fund mechanism, to protect consumers in the rare case of insurer insolvency. The health of AIG’s state-regulated insurance businesses proves the effectiveness of state regulation, particularly in this area of solvency.

While state regulation isn’t without its problems and needs targeted reform, these problems do not include the areas of financial oversight, solvency or consumer protection. If anything, the failure of AIG highlights the strengths of state insurance regulation and should mute, not amplify, the call for deregulation via OFC.

Washington

Ad basically accurate

From Bill Ireland

It’s amusing to watch Mark Mellman, of all people, sputter with indignation about aggressive campaigning (column, “Lies, damn lies, and John McCain,” Sept. 17). But if he’s going to accuse John McCain of lies and dishonor, he ought to provide some, you know, proof. The best he can do is cite the silly “lipstick” controversy, and a McCain ad claiming that Obama supported a radical sex education bill. If he’d done a little homework on the latter, rather than regurgitating his talking points, he would have discovered that the ad is basically accurate.

Since Mr. Mellman chose to inspire us with a musical quote from Stephen Stills (the one who also wrote, “If you can’t be with the one you love, love the one you’re with”!), here’s another stroll down memory lane that explains his befuddlement about the current campaign:

“Something’s happening here, and you don’t know what it is, do you, Mr. Mellman?”

Ontario, Calif.

Favors healthcare rule

From Richard M. Doerflinger, U.S. Conference of Catholic Bishops

Lon Newman’s letter against proposed federal regulations on rights of conscience in healthcare is ignorant and intemperate (“Religion-based job protection jeopardizes family healthcare,” Sept. 23).

The regulations simply explain and implement three statutes duly enacted by Congress in 1973, 1996 and 2004 (with the last of these reenacted by Congress each year since then). These statutes are already in effect, and have not led to the dismantling of the health care system that Newman fantasizes about. Two of the three statutes relate solely to abortion; the third (from 1973) potentially covers a wider variety of procedures but is limited to programs receiving certain types of federal funding. None of the laws talks about “information” as being potentially immoral. Newman’s charge that private hospitals generally will somehow have to limit their provision of birth control or information about it, or violate contracts for doing so, has no basis in fact.

Newman also seems unaware that one of these laws protects physicians and nurses from being discriminated against in medical education and hospital privileges for their willingness to participate in abortions. His charge that Catholic hospitals may have to allow pro-abortion physicians to practice on their premises has been a simple reality of federal law for 35 years. Of course a hospital’s policy may require that abortions not be done on the premises, but then those who are willing can simply do them elsewhere. By contrast, if a hospital policy says its physicians and nurses must do abortions here and now or be expelled, it has directly violated personal conscience.

Washington