How to regulate insurers

Insurance Regulation,” Oct. 8, scatters some truths about the failure of the American International Group (AIG) but, overall, provides an inaccurate picture of the reasons for its troubles and its lessons for the upcoming debate on the optional federal charter for insurance.

Regulatory gaps, not the failure of either state or federal authorities, explain the financial troubles at AIG. In effect, no governmental authority was authorized to watch the entire AIG enterprise. That is the gap that can be filled by an optional federal charter.

Indeed, the optional federal charter initiative is about modernizing a regulatory system that has effectively remained unchanged since the 19th century. It would provide oversight to diversified global financial institutions and allow for a national regulator to enter into international agreements.

For the first time, it would authorize a regulator to look at this vital, national industry from a national perspective.An optional federal charter would reflect the “best of the best” in current state regulations on a wide range of issues, including solvency and consumer protections.

For those companies and agents that would prefer to remain state- regulated, the option would remain.In our view, it is not a question of state or federal regulation. There is a place for both. The question is how to achieve effective regulation. An optional federal charter for insurance is a big part of that answer.

FRANK KEATING

President and CEO

American Council of Life Insurers