WASHINGTON -- Senate Banking Committee Chairman Donald Riegle, D-Mich., has asked Treasury Secretary Nicholas Brady for his assessment of the health of the insurance industry.
In a letter dated Dec. 20 but released today, Riegle says that "although the federal government does not regulate the insurance industry, I believe that the recent history of the savings and loan and commercial banking industries makes clear that the federal government cannot afford to ignore serious problems in any industry that lies close to the heart of the American economy."
In the letter, the Michigan Democrat gets straight to the point: "What action, if any, does the administration believe the 102nd Congress should take to reform the insurance industry or insurance regulation?"
Riegle asked the treasury to respond to his request no later than Sept. 1, 1991.
A treasury spokesperson confirmed that the department had received Sen. Riegle's letter to Treasury Secretary Brady asking him to assess the insurance industry and is reviewing it.
If the treasury complies with riegle's request for a broad assessment of the insurance industry, it would follow similar scrutinization of the thrift and now, banking, industries.
The treasury is soon expected to release its recommendations for major banking and deposit insurance reform.
Insurance companies' assets are thought to be comparable in quantity to the nation's largest banks, as Riegle notes in his letter to Brady.
In his letter to Brady, Riegle asks the administration to comment on the general condition of the insurance industry, specifically its life/health, property/casualty, and reinsurance sectors.
Riegle goes on to ask Brady to describe the nature and degree of the current distress in the insurance industry, and whether it's a long- or short-term condition.
"Currently, insurance consumers are protected against the risk of insurer default by a system of state guaranty funds. Many commentators have noted, however, that the guaranty fund system is currently under severe strain
"Does the existing state guaranty system adequately protect consumers of insurance industry products against the risk that an insurer will fail? What would be the consequences to consumers if one of the 10 largest insurers failed? What would be the consequences if more than one failed?" Riegle asks Brady.
Riegle may already be signaling possible insurance regulation reform in his letter.
Riegle said, "Although many insurance industry products are marketed to consumers as investments, federal law does not subject insurers to disclosure requirements comparable to those applicable to, for example, mutual funds.
"Can consumers obtain sufficient, and sufficiently reliable, information to tell the difference between high-risk and low-risk insurers?"
Riegle also presses the point on the insurance industry's accounting methods.
"Many insurers count anticipated reinsurance recoveries as assets on their balance sheets. Yet for several years many commentators have expressed grave reservations regarding the ability of reinsurers to honor their reinsurance obligations.