CEI Analysis of Geithner Insurance Proposals

Proposals Mix Good, Bad Ideas

Washington, D.C., March 26, 2009—Testifying before Congress today, Treasury Secretary  Timothy Geithner will propose broad new federal oversight for a variety of financial services, including insurance. Analysts at the Competitive Enterprise Institute, a leading free-market think tank, praised some aspects of Geithner’s insurance-related proposals and criticized others.

“Federal oversight of insurers makes sense and, most probably, there’s little harm in a system that excludes the smallest insurers from federal oversight,” said CEI Senior Fellow Eli Lehrer. “I’m worried, however, that making the system mandatory for large firms and closed to small ones, as Secretary Geithner intends to propose, will create a split estate in the insurance industry. If the Federal Government says that certain insurers are ‘too big to fail’ and others are not, then it gives an enormous advantage to certain private business over others. And that’s a bad idea.”

Lehrer argues that, to be effective, any system of federal regulation of insurance must preempt state-level rate regulation. “Rate regulation initially came into being as part of solvency regulation. If the federal government wants to oversee solvency, then it has to oversee rates as well. There’s no way around that.”