Dinallo hands an opportunity to Geithner

By Felix Salmon
May 29, 2009

If Andrew Cuomo tries to become the next governor of New York State — which he almost certainly will — then his current job, attorney general, will open up. And Eric Dinallo almost certainly wants it.

I like two aspects of Dinallo’s decision to step down from his post as New York’s insurance superintendent. The first is the fact that he’s doing it at all: there’s technically no need for him to resign first before running for AG. But clearly a big political campaign would detract from the amount of time and attention he could devote to the insurance industry, and it’s the responsible thing to do.

More interestingly, Dinallo’s resignation temporarily leaves the country without a strong insurance regulator — and that, in turn, should make it much easier for Tim Geithner to push through plans to rationalize the nightmare that is insurance regulation, and bring America’s insurers under one federal regulatory umbrella.

A lot of the consumer-facing aspects of the insurance industry properly should be regulated by a new financial products safety commission: things like variable annuities, in particular, can come close to being predatory, and it’s high time that a regulator with teeth put an end to the sale of the most egregious products. Now would be a great time to introduce legislation creating such a body, and slashing the number of regulators in Washington. If Geithner waits much longer, he’ll only give the entities to be abolished more time to put together a strategy for defeating his bill.

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While I don’t disagree that consumer regulation of variable annuities should be enhanced, I worry that the one entity which has solid risk management–insurance–may be under a Federal umbrella.

Only a third of the actuarial exams are dedicated to the math–the rest are public policy, history and law. When an actuary becomes a fellow, he knows that the only difference between a Ponzi scheme and an insurance reserve is the actuary. Further, the threat of 50 insurance commissioners–not all of them powerful, I grant you, and generally there is a standard form which most follow, as well as one or two trend-setting states like California and Texas and New York. Still, the threat of actuarial review for each product from multiple states sets a discipline in the insurance risk management world that has no equivalent in the financial engineering world. And until those standards become realized, we should maintain an example of good risk management somewhere in the financial services world. After all, aside from AIG, the insurance industry has been a pretty good example of risk management.

Posted by Richard | Report as abusive