Insurance industry judged on AIG woes
AIG is the single biggest challenge that the industry faces when trying to persuade policymakers to keep insurers out of new legislation focusing on the financial services industry, delegates at the Insurance Day Summit London were warned.
According to Sean McGovern, director, North America and general counsel at Lloyd’s, the fact that the then world’s largest insurer’s problems were not caused by its core insurance business was often seen as being irrelevant by politicians, mainly because they did not understand the nature of the insurance business.
Speaking during a regulatory panel discussion at the Summit, McGovern said: “We can all come up with a very reasoned, technical argument which says that it was actually AIG’s financial products division which got it into difficulty but the problem with that is by that point you have already lost the politicians.
“Certainly, when I have visited Washington that has been the single biggest challenge in trying to carve insurance out of legislation. Everyone comes back and says ‘but what about AIG?’”
McGovern said engaging policymakers in trying to appreciate such differences was something that the industry needed to do better in the future.
“Part of the problem is that because insurers haven’t been a problem in the past, they [the policymakers] have not needed to get in there and understand the risks associated with the insurance industry,” he said.
And McGovern said that the recent International Monetary Fund (IMF) proposal which recommended implementing two new taxes to fund future bailouts of financial institutions was the most recent manifestation of the insurance industry’s voice not being heard or understood.
“The IMF report, which was produced essentially by Korean central bankers who don’t have the knowledge of the insurance sector, has simply folded insurers into a proposal to levy banks for a financial bailouts, just because it was too difficult to exclude them,” he said.
Fellow panellist Alessandro Iuppa, former president of the National Association of Insurance Commissioners and now senior vice president of government and industry affairs at Zurich North America added: “The IMF levy really is a good example of the harm that can come to us.
”In that proposal there is talk of levying a fee on insurers’ liabilities. “I have heard of some crazy things but certainly putting a tax on liabilities is not prudent in the insurance sector.
“The voices of the insurance industry really aren’t there,” he agreed.
“For example, when you look at the IMF/World Bank spring and fall meeting, Washington DC is filled with the banking community, doing their lobbying, raising their voices, engaging with the policymakers. Insurance just never comes up.
“If we as an industry do not become engaged in those non-traditional forums for policymaking at this point we really will be at a big disadvantage for the next 20 to 25 years,” he warned.
