Maryland Insurance Commissioner Ralph S. Tyler and other insurance industry officials testified before the U.S. House Financial Services Committee that insurance does not need additional consumer protection from the federal government.

Tyler testified that state regulation successfully handles the complexities of insurance and that federal regulation could preempt state laws developed to handle the complexities.

Ralph S. Tyler

“While [a federal regulatory system] may be an appropriate structure for other financial sectors, the states believe insurance has unique challenges best handed by a single regulatory department,” Tyler said, representing the National Association of Insurance Commissioners, the association of state insurance commissioners in the 50 states and the District of Columbia.

Tyler’s appeal was echoed by officials with the National Association of Insurance and Financial Advisors, NAVA, The Association for Insured Retirement Solutions, and the American Council of Life Insurers, who were asked to address the Obama Administration’s proposal to create a Consumer Financial Protection Agency (CFPA) as a means to providing additional consumer protection for financial service products.

Cliff F. Wilson, president of the National Association of Insurance and Financial Advisors, said insurance “oversight is not workable, nor is it necessary.” He added that the possibility of dual regulation by both the states and federal regulators could have a “chilling effect” on the creation of new life, annuity or long-term care and disability insurance products in new markets.

Wilson called separating regulation from solvency issues “dangerous.”

Gary E. Hughes, executive vice president and general counsel for the American Council of Life Insurers, testified that his organization does not want to see 51 reviews turn into 52 reviews, and while the group supports federal insurance regulation, it doesn’t want another consumer regulatory agency that will further delay and duplicate product approvals. Life insurance regulation would be “weakened” by its inclusion in the CFPA, he said, noting that solvency is a key component and subject to state reviews.

Cathy Weatherford, president and CEO of NAVA, called the CFPA “unnecessary, or even inadvisable for the annuity industry,” as the group called on Congress to continue looking at modernizing and improving insurance.

Tyler touched on the potential of federal oversight preempting states’ laws. “We believe a new agency to regulate consumer protections in insurance is not necessary and would cause the kind of overlaps that lead to preemption of state laws and rules designed specifically to address the complexities of insurance,” Tyler testified.

Tyler explained that insurance, because of its promissory nature, is “unique” because “consumers tend to interact with insurers only when a negative event has transpired, creating additional strain on the relationship between the insurer and the policyholder.” The NAIC has worked hard to provide a range of consumer protection tools for these interactions, Tyler said.

A great deal of the hearing focused on consumer protection in banking and in the difficulty people have in both understanding credit disclosures contained in credit card applications.

Wilson said insurance products are subject to “comprehensive state insurance regulatory oversight,” should not be separated from their solvency regulation and would not be well supported in a federal system of oversight because the Washington officials have no insurance expertise or regulatory infrastructure.

Wilson said he feared the lack of clarity that would occur if state and federal regulators both monitored insurance. “The danger is that we could end up with a dual regulatory structure in which the authority of the sates in undercut, or at least put into question,” Wilson testified.