What Lessons Does the CRA Offer the Insurance Industry?
In light of the $150 billion bailout of AIG, there has been a renewed call for increased federal involvement in the insurance industry, including a proposal to extend something similar to the Community Reinvestment Act (CRA) to insurance providers. Although that seems fair at first glance, simply applying the banking model to insurance is problematic for several reasons: (1) it contradicts the core business model of insurance; (2) it would not address the existing deficiencies in serving the low- to moderate-income market; and (3) the current fractured regulatory structure has no capacity to administer, uniformly and cogently, a national program such as a new CRA-like requirement. A greater opportunity exists in leveraging what insurance does best: mitigating risk to encourage investment and innovation and smooth unpredictable losses.
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