The Financial Crisis, Systemic Risk, and the Future of Insurance Regulation
This article was originally prepared for NAMIC Issue Analysis. I thank NAMIC for financial support, Robert Detlefsen of NAMIC for encouraging me to undertake this project and for many helpful comments, Terrie Vaughan and Mary Weiss for helpful advice, and Georges Dionne, the editor.
Abstract
This article considers the role of American International Group (AIG) and the insurance sector in the 2007–2009 financial crisis and the implications for insurance regulation. Following an overview of the causes of the crisis, I explore the events and policies that contributed to federal government intervention to prevent bankruptcy of AIG and the scope of federal assistance to AIG. I discuss the extent to which insurance in general poses systemic risk and whether a systemic risk regulator is desirable for insurers or other nonbank financial institutions. The last two sections of the article address the financial crisis's implications for proposed optional and/or mandatory federal chartering and regulation of insurers and for insurance regulation in general.
