Less Than the Sum of Its Parts
As New York seeks to consolidate insurance and financial regulation,
will oversight itself suffer?
BY ELIZABETH D. FESTA
THE PRoPoSED MERGER of the New York banking and insurance departments, with segments of
the consumer protection board, will result in stronger enforcement of insurance
companies, according to many parties,
although the effect will probably be tempered somewhat as the bill goes through
the legislative process.
The budget is due April 1st. As of this
report, the legislative option was still in the
budget and would be passed us such, unless it is taken out as a separate item. The
industry was busy in late March trying to
defang it, to some degree.
Some see the combination as being in
line with the proactive response to the AIG
crisis. others view it as part of the greater
oversight of Wall Street in general, while
some see Gov. Andrew Cuomo seeking
to keep the luster gained from his days as
state Attorney General in play.
Former (2005-2007) New York Insurance Superintendent Howard Mills, now
chief advisor to the insurance group at
Deloitte, said he was concerned that the
regulator would become the criminal investigator as well. “We already have that
function. There is no need to duplicate
that. It can lead to a hostile environment
for the industry,” he said.
“The concern is that one would hope that
[the consumer protection board function]
wouldn’t become a prosecutorial type of
function. Housing a regulator and a prosecutor together could duplicate to some
degree what the AG’s office does,” Mills said.
“It seems likely that if the bill passes
there will be increased scrutiny of the financial services industry,” said Mark Peters, partner with Edwards Angell Palmer
& Dodge in New York speaking to National
Underwriter before the budget deadline.
Although one industry veteran said the
insurance agents had an uncanny ability
to make things happen with their strong
lobbying power, others noted that Cuomo
is in a strong position and will make the
merger happen sooner rather than later.
in a strong
bill, would want it to be the insurance supervisor to speak to the governor, and not have
to go two levels up to reach him, pointed out
a longtime industry representative.
Indeed, Derrick Cephas, CEo of Amalgamated Bank and a former NY banking superintendent in the early 1990s, is one banker
rumored to be Cuomo’s pick. Two folks in
Cuomo’s circle whose names have been
floated for the job are Paul Francis, who was
budget director for former Gov. Eliot Spitzer
and a state government guru and Benjamin
Lawsky, a special assistant and deputy counsel with a law enforcement background.
Birny Birnbaum, executive director of
The Center for Economic Justice and former chief economist with the Texas Insurance Department, supported the merger in
theory by noting the great overlap among
products traditionally regulated separately
as securities, banking or insurance.
“Consumers have suffered from inconsistent regulation of similar products—for
example debt cancellation products versus credit insurance. Consumers benefit
when there is one regulator for financial
products so the regulator can address
similar issues across similar products in a
consistent fashion,” Birnbaum stated.
“But such consolidation must not be
an excuse to defund either insurance or
banking regulation to a level inadequate
to protect consumers,” the consumer advocate cautioned. NU