Washington, D.C. (June 24, 2009) — Consumers would suffer an erosion of the most important consumer protection of all—insurance company solvency—if life insurance products are subject to oversight by the proposed Consumer Financial Protection Agency (CFPA), Gary E. Hughes, executive vice president and general counsel of the American Council of Life Insurers (ACLI) today told a congressional panel.

“Divorcing the regulation of our products from the rest of life insurance solvency oversight would result in weakening consumer protections and jeopardizing the solvency of life insurers, particularly in light of the fact that the requisite expertise to deal effectively with life insurance products is absent at the federal level,” Hughes said at a hearing conducted by the House Financial Services Committee.

A CFPA, which would have jurisdiction over the design of certain financial products, is a major element of the Treasury Department’s proposal to reform financial services regulation in the United States.

ACLI and its member companies unequivocally support strong consumer product protections and are committed to working with functional regulators to improve those protections. However, subjecting insurance products to the additional jurisdiction of the CFPA would have the opposite effect, Hughes said.

Hughes cited four factors that support this position:

• Life insurance products are already heavily regulated by all states. “Because life insurance products are already regulated by the states, there is no justification for the added scrutiny of an agency like the CFPA. Fifty-one product approvals are more than sufficient. Adding a fifty-second merely adds a regulatory burden, the costs of which will be borne by consumers without any corresponding benefit.”
• There is no evidence that life insurance products were a cause of, or contributing factor to, the current financial crisis. “The financial crisis has not highlighted or given rise to any additional or fundamental need for insurance products to be made subject to an agency such as the CFPA.
• Life insurance regulation and solvency are inherently linked, and separating them could affect solvency protection. “Subjecting life insurance products to the jurisdiction of the CFPA and thus disaggregating important aspects of life insurance solvency regulation would run the very real risk of increasing, not decreasing, systemic risk for insurance and weakening, not strengthening, the protection of life insurance consumers.”
• There is no federal insurance regulatory expertise to deal appropriately with the technical underpinnings of life insurance products and their relationship to solvency. “Empowering the CFPA to delve into insurance product regulation while not functioning as the functional solvency regulator for life insurance would result in adverse consequences for life insurance consumers and for life insurance companies.”

“Effective solvency oversight requires that a single regulator have authority over both solvency and product design. Separating those two functions undermines the essence of insurance regulation and harms the interests of consumers,” Hughes said.

Download Mr. Hughes' Full Testimony (PDF).

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The American Council of Life Insurers (ACLI) is a Washington, D.C.-based trade association whose 340 member companies account for 93 percent of the life insurance industry’s total assets in the United States, 94 percent of life insurance premiums and 94 percent of annuity considerations. In addition to life insurance and annuities, ACLI member companies offer pensions, including 401(k)s, long-term care insurance, disability income insurance and other retirement and financial protection products, as well as reinsurance. ACLI's public Web site can be accessed at www.acli.com.