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Federal effort to regulate insurance a bad idea

BY JOHN D. DOAK Published: December 4, 2011

America is still reeling from the 2007 financial crash, brought on in part by federal government failures.

The Financial Crisis Inquiry Commission said factors contributing to the downturn included “widespread failures in financial regulation, including the Federal Reserve's failure to stem the tide of toxic mortgages … key policymakers ill-prepared for the crisis, lacking a full understanding of the financial system they oversaw (and) systemic breaches in accountability and ethics at all levels.”

Brace yourself: Now Washington wants to regulate insurance.

For more than 150 years, the states have protected consumers while maintaining vibrant and solvent insurance markets. Insurance commissioners are elected by the people in 11 states, including Oklahoma. Most others are appointed by their governors. Unlike federal bureaucrats, state commissioners are more directly accountable to voters.

Since 1871, the National Association of Insurance Commissioners has helped states set regulatory benchmarks and pursue mutual goals, modernizing insurance regulation and facilitating business across state lines.

But a new federal bureaucracy — the Federal Insurance Office (FIO) — was established by the massive Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. This new agency within the U.S. Treasury Department provides added oversight for an industry already among America's best regulated.

The move might make sense if insurers played a major role in the meltdown, but they didn't. Even in the case of taxpayer-rescued AIG, it was not the company's insurance business that crashed. Periodic financial exams and strong capital requirements set by state regulators minimize failures. Each state maintains a guarantee fund protecting consumers in the event of a company's insolvency and no state's guarantee fund has ever failed to pay when a company failed.

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