With that in mind, the group urged the Financial Stability Oversight Council to focus on the insurance industry’s risky activities and products rather than designating large insurers as non-bank Systemically Important Financial Institutions (SIFIs)—namely, too big to fail.
“It is not clear the designation reduces systemic risk,” said Justin Schardin, the BPC’s financial regulatory reform initiative director, in a briefing accompanying the release of the report.
Ann Kappler, chief of external affairs at Prudential Insurance, said FSOC should be more of an advisory group.
Prudential is among a handful of life insurers that has been labeled as a non-bank SIFI by the FSOC, a collection of leaders from the nation’s financial regulators which was set up by the Dodd-Frank Act to provide an overview of dangers to the financial system.
Countering claims that Federal Reserve regulation of insurers designated as SIFIs would force bank-type rules on them, Michael McRaith, who was the first director of the Federal Insurance Office, said the Fed has broad discretion on what types of supervisory measures to use on them.
The BPC report said the primacy of the states in insurance regulation could be threatened by state insurance office budgets.
The budget problems have meant salary levels of insurance regulatory workers haven’t allowed the offices to hire people with the level of expertise they need, warned Terri Vaughn, former CEO of the National Association of Insurance Commissioners.
If the funding reductions could lead to noticeable problems, the study said, Congress could increase the federal role in regulation, including the possibility of an optional federal charter for insurance businesses.