The worst thing that could happen to consumers if life insurance products are brought under the oversight of a proposed Consumer Financial Protection Agency (CFPA) would be the loss of a key consumer protection—insurance company solvency.

That’s the view of Gary E. Hughes, executive vice president and general counsel of the American Council of Life Insurers (ACLI), who recently testified in front of the House Financial Services Committee.

“Divorcing the regulation of our products from the rest of life insurance solvency oversight would result in weakening consumer protections and jeopardizing the solvency of life insurers, particularly in light of the fact that the requisite expertise to deal effectively with life insurance products is absent at the federal level,” Hughes explained to the committee.

The Treasury Department has proposed the CFPA as part of the reform of financial services regulation. This proposed agency would have jurisdiction over the design of certain financial products.

However, the ACLI believes that subjecting insurance products to the additional jurisdiction of the CFPA would weaken consumer product protection. In his testimony, Hughes gave four reasons to support his position:

1. Life insurance products are already heavily regulated by all states, so there is no justification for the added scrutiny of the CFPA. Adding another product approval adds a regulatory burden, the costs of which would be passed on to consumers with no benefit to them.
2. There is no evidence that life insurance products were a cause of, or contributing factor to, the current financial crisis.
3. Life insurance regulation and solvency are connected, and separating them could affect solvency protection. Subjecting life insurance products to the jurisdiction of the CFPA would run the risk of increasing systemic risk for insurance carriers and weakening the protection of consumers.
4. There is no federal insurance regulatory expertise to deal with the technical aspects of life insurance products and their relationship to solvency. Giving the CFPA the authority to delve into insurance product regulation while not also serving as the functional solvency regulator for life insurance would result in adverse consequences for consumers and companies. Effective solvency oversight requires a single regulator to have authority over both solvency and product design.