Congressman Bruce Braley, a Democrat from Waterloo, says it may be time for congress to consider a law which requires insurance companies to put policyholders ahead of shareholders. So-called "mutual" companies are owned by the people who buy the company’s insurance policies, but many mutual companies started selling stock and became publicly-traded companies.
"A lot of those demutualizations resulted in a significant financial loss to policyholders who owned the mutual companies and during the conversion in many cases were screwed out of their financial share of those companies," Braley says. Braley made his comments today during a House Oversight Committee hearing discussing the federal bailout of the nation’s largest insurance company — AIG.
Braley pointed out, though, that AIG wasn’t strictly an insurance company and in Braley’s opinion it fell through cracks in the regulatory system because it was not subject to oversight from the federal Securities and Exchange Commission. "Insurance companies are fond of talking to consumers about gaps in coverage and how they should eliminate those gaps, but we’ve got a massive, $63 trillion gap in coverage when we’ve got a product which under most common sense interpretations would be considered insurance," Braley said. " We’re not regulating it in the state insurance commissioner’s offices."
Braley said it may be time for new federal and state oversight of insurance companies. "One of the concerns I have is this blurring distinction between financial services providers — real estate, insurance, banking, other financial institutions — and how you hold accountability when these holding companies are involved in all these different financial services," Braley said, "because clearly the system we have in place now is not working."
According to Braley, there have been "radical" changes in the insurance industry that have been damaging to the people who buy insurance policies — and which have led to the need for a federal bailout of the nation’s largest insurance company, AIG. "Twenty-five years ago I was a research assistant to professor Alan Widiss who was updating the Keeton and Widiss basic text on insurance law," Braley says. "I think both professor Widiss and professor Keeton would be rolling over in their graves seeing what has happened to the industry that they were so passionate about."
In mid-September the Federal Reserve rescued the financially-ailing American International Group — AIG — with an $85 billion loan. The federal government now holds an 80 percent stake in the company.