The Obama Administration plans to curb financial excess and failure by imposing higher Capital requirements on Financial Institutions. See Download Treasury Secretary T.F. Geithner Written Testimony Before U.S. House Financial Services Committee 09.23.09. This seems like a lesson learned from Reserves requirements imposed by the States on Insurance Companies.
Another lesson learned from the States' Regulation of Insurance Companies is the concept of "insurable interest". It is another part of the Administration Plan to require securities speculators to have an interest in things being insured by Credit Default Swaps for example.
An old saying has it: Everything is changing, but nothing is new.
In a somewhat related note, it appears that while the Obama Administration is learning lessons from State Insurance Regulators, the State Regulators themselves may as a body be in the process of forgetting -- or ignoring -- those same lessons. It is reported that a majority vote in the National Association of Insurance Commissioners has approved a model law which would move Life Insurance Companies away from their current Reserves requirements to something called "principles-based reserving".
Another description of this method of setting Reserves has been offered: "[A] 'trust me' approach to regulation." David Hilzenrath, "Life Insurers Seek More Flexibility/Group Endorses a New System for Reserve Requirements" (Washington Post.com, Thursday, September 24, 2009), quoting New York Life Insurance Company Vice Chair Gary Wendlandt. [Emphasis added.]
It is unclear whether this approach to reserving and regulation will benefit people paying Premiums for Life Insurance Coverage. Supporters of the change at the NAIC announced that the Reserves change would give "greater discretion" to Life Insurance Companies and make it "easier" for regulators. Life Insurance Companies have been pushing the NAIC to turn to 'principles-based reserving' for the reason, they urge, that the current Reserves requirements are too high. This would imply, of course, that the Life Insurance Company personnel think that the new kind of reserving and regulation will lower their Reserves requirements. This is consistent with the position taken by the Commissioners who voted against the change. The Wisconsin Insurance Commissioner, for example, is quoted in the linked article as observing: "'I'm afraid that the consumer may not have the reserves there when we face a future financial crisis.'"
There can be no doubt about this: Time will most certainly tell if and after this change takes effect.
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