Essay about Federal Government 's Regulating The Insurance Industry

1504 Words Apr 15th, 2016 null Page
Background The federal government’s role in regulation is to protect consumers and the market. There is an ongoing debate on whether the federal government should regulate the insurance industry due to the bailouts stemming from the financial crisis of 2008. Currently, state governments regulate the insurance industry. Proponents of federal regulation argue that states are inefficient in the duty of insurance regulation. Additionally, the federal government has economies of scale and may offer an increase in efficiency unlike state regulation. There are advantages to both sides of this debate; however, states should still be given this responsibility. The federal government should not regulate the insurance industry because it is not systemically significant to the market economy, states have the ability and resources to regulate, and federal regulation would result in unnecessary costs.
The Insurance Industry and Systemic Risk The federal government regulates industries due to inherent systemic risk to the country’s economic environment. “Systemic risk is the risk that an event will trigger a loss of economic value or confidence in a substantial segment of the financial system that is serious enough to have significant adverse effects on the real economy with high probability” (Cummins and Weiss, 490). For example, banking institutions such as Lehman Brothers, Merrell Lynch, and Goldman Sachs were major contributors to the financial crisis in 2008 because these…

Related Documents