WASHINGTON, D.C. -- A proposed national insurance regulatory office would give the federal government a window into the insurance business and allow it to identify and respond to emerging issues more readily than state insurance departments. Moreover, a national insurance regulatory office would give Congress the leverage is presently lacks to force action to address new problems.

Promontory Financial Group, a financial services consulting firm, reported these findings in a study titled “The Proposed Office of National Insurance: Organization, Functions, Size and Cost.” Funded by the American Council of Life Insurers, American Insurance Association, and the Financial Services Roundtable, the purpose was to analyze the structure, cost and operations of a federal insurance regulatory office modeled on the Office of National Insurance legislation (S. 40, H.R. 3200) that was considered in the 110th Congress.

This study is particularly timely as America reexamines financial services regulation. Regulatory reform of the insurance industry has been under discussion for some 10 years, but up to this point, the discussion has been largely theoretical. The Promontory Study at last puts some ‘flesh on the bones’ and offers federal policymakers clear guidance on what a functioning federal insurance regulator will entail.

“Promontory approached this project as an analyst, not an advocate,” said Eugene A. Ludwig, Promontory’s Founder and CEO. “The objective was to assess the nuts-and-bolts of creating a new federal regulatory agency. Ultimately, it will be up to Congress and the Obama Administration to determine the overall structure of financial services regulation and how insurance fits into that structure.”

The study found that a federal insurance office would likely employ 2,390 full-time staff and have an annual budget of $465 million. This would make the insurance office a relatively small agency compared with the Office of the Comptroller of the Currency, the Securities and Exchange Commission and the Federal Deposit Insurance Corp.

Moreover, these figures do not take into account economies of scale that would occur if the largest insurers come under federal oversight, which would reduce costs. Since the federal office would be funded by user fees, it would impose no new burden on the federal government and taxpayer

The new office would be able to attract and retain top specialists in insurance regulation, such as experts in capital markets, because of the professional interaction and development afforded by a national regulator. Because ONI would be a national regulator, the staff would be better positioned than state regulators to apply industry-wide solutions to emerging issues.

As for market conduct, ongoing oversight by Congress would ensure against deterioration in standards. The interplay between consumer-oriented legislators and regulators on the state and federal levels could raise the bar for best practices in market conduct regulation, thus leading to a “race-to-the-top” as opposed to a feared “race-to-the-bottom.”

On the international front, a federal office would improve the way the U.S. relates to the international regulatory community. As a national regulator, the federal office would carry the requisite weight and authority to negotiate and collaborate in international forums as a peer to regulators from other jurisdictions.

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