This week, banking committees on both sides of Capital Hill are looking at the state of the insurance industry and its regulation, beginning with a hearing April 28 by the Senate Banking Committee titled "The State of the Insurance Industry and Insurance Regulation."
The star witness was Roy Woodall, a member of the Financial Stability Oversight Council (FSOC). The FSOC was created under the Dodd-Frank Act to coordinate regulation of financial companies in order to head off a recurrence of a crisis such as the 2008 episode in which a single insurance company, AIG, engaged in offshore activities beyond the reach of U.S. regulators, causing losses that rippled throughout the financial system. The FSOC has designated AIG, GE Capital, Prudential and MetLife as systemically important financial institutions (SIFIs) subject to heightened supervision and stronger capital requirements to be administered by the Federal Reserve.
Woodall dissented against the designation of Prudential and MetLife as SIFIs and has served as point man for demands that the Fed tailor regulation of the insurance industry to take account of differences between the business model of that industry versus that of the banks the Fed is used to regulating.
Mark Van Der Weide, deputy director of the Fed's division of banking supervision and regulation, told the committee that the Fed is in the early stages of developing tailored regulations for the industry and that the regulations will go through a public comment process when they are released at an unspecified date.
Sen. Elizabeth Warren, D-Mass., raised questions about another set of regulations pending at the Labor Department to set up rules for the sale of annuities and other investment products, suggesting that disclosure may not be enough. Warren asked Kevin McCarty, a commissioner
Florida Insurance Department who represented the National Association of Insurance Commissioners, about "a problem that's costing American families about $17 billion a year, and it starts with loopholes in the law that make it perfectly legal for brokers and advisers, including folks who sell insurance products, to take kickbacks for pushing lousy retirement products on unsuspecting families."
Warren pointed to sales of $200 billion of annuities sold by the insurance industry annually, and she quoted an observer as saying these products are rarely recommended by fee-paid advisers, but "commission-only advisers seem to love them." The senator called the kickbacks "amazing — free cruises, luxury vacations at 5-star resorts, an African safari, private yacht tours of the Mediterranean, iPads, Mercedes Benz leases and a diamond-encrusted NFL Super Bowl-style ring with a large ruby in the middle."
She credited McCarty with being "a real leader in protecting vulnerable seniors," and he said that annuity sales pose "a lot of opportunities for misleading our elder seniors into buying products that are not suitable for them" and decried the practice of "churning and twisting" customer accounts.
While Warren acknowledged that there are legitimate products, she called for "quick and forceful action" by Department of Labor and also announced an investigation of annuities products that asks the 15 largest sellers to disclose the extent to which they pay kickbacks.
(Archived video can be found here
. An April 29 hearing of a House Financial Services subcommittee, with a similar panel, can be found here
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