GAO Report Says State Regulatory System Worked Well During Financial Crisis

A report by the Government Accountability Office (GAO) found that the state insurance regulatory system worked to help mitigate the negative effects of the 2007-2009 financial crisis on the insurance industry. In addition, the GAO found that since the financial crisis, state insurance regulators have continued efforts to strengthen the insurance regulatory system.

The report noted that state regulators were especially critical in maintaining general stability in the market during the crisis. “The effects of the financial crisis on insurers and policyholders were generally limited, with a few exceptions,” the report stated.

The GAO report was proposed 18 months ago by PIA and was prepared for the chairman of the House Financial Services subcommittee on Housing and Insurance, Rep. Randy Neugebauer (R-Texas), as well as subcommittee member Rep. Steve Stivers (R-Ohio).

PIA wanted the GAO to do the study because a separate Congressionally-mandated study of insurance regulatory modernization by the Federal Insurance Office (FIO) — which was due in January 2012 and has still not been released — would be biased in favor of federal insurance regulation, based upon the questions the FIO published for it.

“The GAO report is positive, in that it essentially says the state regulatory system worked well during the financial crisis,” said Mike Becker, vice president of federal affairs at PIA National. “It also says that state regulators and the NAIC have taken steps since the financial crisis to further strengthen the state insurance regulatory system.”

“Multiple regulatory actions and other factors helped mitigate the negative effects of the financial crisis on the insurance industry,” the GAO report notes. It said state insurance regulators and the NAIC took various actions to identify potential risks and help provide capital relief for insurers. In addition, several federal programs were also made available that infused capital into certain insurance companies. “Also, industry business practices and existing regulatory restrictions on insurers’ investment and underwriting activities helped to limit the effects of the crisis on the insurance industry.”

The report found that the financial crisis “generally had a limited effect on the insurance industry and policyholders,” with the exception of certain annuity products in the life insurance industry and the financial and mortgage guaranty lines of insurance in the P/C industry. PIA National will be providing additional analysis of the GAO report.

Impacts of and Regulatory Response to the 2007-2009 Financial Crisis (GAO)