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Tuesday, March 24, 2009

Cuomo and AIG - a history lesson

Doesn't anyone know the (peculiar) history of insurance regulation in the U.S.?  

Based on the tv coverage of President Obama's news conference this evening, it seems safe to assume that the tv pundits aren't aware of it.  In his press conference, President Obama was asked why Attorney General Andrew Cuomo of New York was able to make more headway (regarding bonuses) with AIG than the federal government.  What Pres. Obama could easily have said (had he not focused on the questioner's second question) was that the insurance business is one of the few industries (the only industry?) in the U.S. that is still regulated principally by the state governments (click here for a brief synposis).  This is despite the fact that the insurance industry -- one of the first businesses (after the slave trade) to expand across state lines -- lobbied Congress for federal regulation after the Civil War.  It is precisely because insurance companies have taken on much broader financial activities in the last couple of decades that the Obama administration is (finally) proposing to broaden federal regulation of financial institutions so that it encompasses entities such as AIG. 

For details on the post-Civil War efforts on behalf of federal regulation, see Philip L. Merkel, "Going National:  The Life Insurance Industry's Campaign for Federal Regulation after the Civil War," Business History Review 65:3 (Autumn 1991): 528-553 (on JSTOR).

[edited to correct typ0]