It was great to see so many friends, clients and readers in Dallas last week at the AICP conference. In the third of the three sessions at which I was a presenter, we talked about Federal Oversight of Insurance. The format was very informal and, I think, informative. My co-presenter was Tom Hampton, former banking and insurance commissioner from DC. Our approach was to each offer our respective perspective on each slide so there was plenty of back and forth discussion. There were other current and former state regulators as well as Eric Nordman of the NAIC in the audience so we had some very interesting exchanges. We talked quite a bit about the posted [job description] for the new Director of the Federal Insurance Office.
In that context, it was very interesting to read the article in the October 2nd issue of The Economist magazine on my way home. An article titled “Finance’s other bosses” caught my eye. I was amused by the statement that “So it is right that the comings and goings of bank bosses attract lots of attention. That process can look pretty messy - witness the botched succession process at HSBC and the bloodletting at UniCredit. Until, that is, you compare it with finance’s other big personnel issue: who runs the regulators.” Shortly thereafter, it notes: “The hiring process for the head of the new Federal Insurance Office has only just kicked off.”
But the article goes on to raise the question: “Does it really matter who is in charge of the regulators? The grunt work of supervision depends on more junior staff, who will always struggle to keep tabs on smarter, better-paid types in the firms they regulate.” I am not sure “smarter” is always true, but “better-paid” certainly is!
The magazine answers the question a bit hesitantly: Yes it matters (and it advocates regulators “with spine” over “invertebrates”) but not as much as one might think. The conclusion is:
“Damaging uncertainty about the scope of new agencies cannot begin to dissipate until people are appointed to run them. America’s Financial Stability Oversight Council, whose first meeting was due to be held [last] week, has some very basic questions to answer about what constitutes a systemically important firm, for example. Legitimacy matters, too. The shift towards a more pre-emptive form of regulation, in which a build-up of systemic risk is addressed before trouble hits [requires] a sense of public accountability.” The article further argues that the speed of appointments should pick up so that we know who the regulators will be under this new paradigm of regulation.
That conclusion is consistent with the sentiments of those at the AICP conference session: much will be unknown about federal oversight of insurance until we know who is selected to lead the FIO. The current job posting is open until October 20, 2010 so it is unlikely the Director will be in office for much, if any, of 2010. Given all the responsibilities and reports mandated by Dodd-Frank, that will make for a busy 2011.