WASHINGTON (April 5, 2006)—The National Association of Mutual Insurance Companies (NAMIC) announced its strong opposition to the federal regulation of the property/casualty insurance industry under the so-called “optional federal charter” proposal that is scheduled to be announced at a press conference tomorrow by Sens. John E. Sununu, R-NH, and Tim Johnson, D-SD. “Federal regulation has proven no better than state regulation at addressing market failures or protecting consumer interests and, unlike state regulatory failures, federal regulatory mistakes can have disastrous economy-wide consequences.” said NAMIC Federal Affairs Senior Vice President David A. Winston. Winston cited the federal savings and loan debacle of the late 1980s that cost taxpayers well over $100 billion as one such failure.
The Sununu-Johnson bill would establish an optional federal charter for insurance companies, including property-casualty companies. Currently, property-casualty insurers are regulated by the states in which they do business. The Senate bill would create an alternative whereby insurers could choose to be regulated by a newly-created federal insurance regulatory authority instead of by state insurance departments pursuant to state law.
“The insurance industry is not a monolith,” said Winston. “Life, property/casualty and health are all distinct businesses with different concerns.” Winston notes that life insurers are seeking a federal charter option because they sell products, such as annuities, that compete with bank and securities products. In contrast to the life insurance business, the property/casualty business is much more locally-based and not subject to competition from banks and securities firms. States have been the sole regulator of most insurance products throughout U.S. history . In adopting the McCarran-Ferguson Act in 1945, Congress recognized the central role of the states in the regulation of insurance and the states have done nothing to warrant a federal takeover of a substantial part of their business.
While the current regime of state-based insurance regulation is not perfect and in need of reform, the states have made great progress addressing antiquated rules such as those involving price controls and company licensing restrictions. “State regulation has not been perfect,” said Winston, “but the states have been working hard to address legitimate issues of concern. In fact, today only 16 states require statutory prior approval rates.” Other recent progress includes:
“A significant concern for NAMIC member companies is that while proponents of federal regulation may design a ‘perfect system,’ they can neither anticipate nor prevent the imposition of disastrous social regulation in exchange for the new regulatory structure,” said Winston. “We fear that such regulation could ultimately make coverage less available and affordable for most consumers. We would much prefer that the states continue to work together to achieve greater regulatory uniformity.”
Proponents of an optional federal charter argue that the legislation would simply create an alternative regulatory scheme for those who seek it. But Winston warned that the promise of “choice,” while seemingly reasonable could well result in dual regulation for insurers, just as it has for banks. Current banking law gives banks the choice of being regulated under either a federal or state charter, but all banks are subject to some regulation by the Federal Deposit Insurance Corporation (FDIC), regardless of their charter. “It is not inconceivable, and indeed likely, that for an optional federal charter to work, Congress would eventually be forced to replace the state guaranty funds with a federal insurance fund similar to the FDIC,” said Winston. “Once that occurred, insurers choosing to remain under state regulatory jurisdiction could nevertheless find themselves subject to a vast array of federal rules.”
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Rick Nelson, APR, CAE
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Posted: Wednesday, April 05, 2006 12:00:00 AM. Modified: Wednesday, April 05, 2006 11:25:20 AM.
317.875.5250 - Indianapolis | 202.628.1558 - Washington, D.C.