Insurers Jump on TARP Despite Concerns

"It's important for everyone, and especially policyholders in AIG insurance companies, to understand that the insurance companies, which are regulated by New York and other states, are solvent and have the funds to pay any policyholder claims," Dinallo said. "AIG's problems came from its parent company and from its non-insurance operations, which are not regulated by New York or any other state."

Federal Oversight

Whit Cornman, spokesman for the ACLI, refuted the suggestion that it was using the current financial situation to advance an optional federal charter (OFC), saying:

"We've spoken with Commissioner Praeger since then and have explained what we were asking for in the letter to Sec. Paulson: for the Treasury Secretary to create an office to collect insurance information. Indeed, the NAIC supports federal legislation that would also create this office. The discussion of the role of the federal government in insurance regulation has been fueled by the crisis. It is not something we generated."

He emphasized that state regulation served consumers, the industry and the nation well for many years, saying "the regulators have much to be proud of, but this is a new era, and reform that encompasses federal involvement is crucial."

Cornman went on to explain that the ACLI has been pursuing an optional federal charter for eight years "because of the need for our regulatory system to reflect the realities of the 21st-century marketplace. Part of that equation is the need for the federal government to be involved in some way in all lines of financial services, including the life insurance industry. Life insurers are dealing with national issues like Americans' financial and retirement security. Federal involvement makes sense."

With annuities and the insurers' performance such a current concern, Cornman said:

"As we have consistently and persistently maintained, the current system of state regulation worked well when insurers operated in one, two or a handful of states. However, times have changed. Today, insurers are operating in all 50 states and internationally. With each state setting its own rules and regulations, the current system has created a patchwork of laws and regulations that is a detriment to product innovation and consumer protections."

Countering Cornman, Virginia Insurance Commissioner Al Gross, commenting on the October adoption of some international supervisory standards and guidance addressing risk-management practices of insurers, recognized the current crisis in financial markets raises a number of critical issues regarding the practices of all financial institutions. Said Gross:

"To date, insurance companies have not been the source of the failure of major financial institutions, but there are undoubtedly valuable lessons to be learned. Adoption of these papers is the first step in creating a broad, comprehensive framework of supervision -- both for insurance companies and for more complex financial holding companies."