Regulation of Property/Casualty Insurance: The Road to Reform

NAMIC supports a reformed system of state property/casualty insurance regulation as the optimum regulatory structure. "A reformed system of state insurance regulation is superior to an unproven new system of federal regulation crafted in a difficult political environment," stated David Anderson, NAMIC chairman and secretary/treasurer of Farm Mutual Insurance Co. of Lincoln County, Canton, S.D. "The road to reform runs through state capitals, not Washington, D.C."

NAMIC's paper, Regulation of Property/Casualty Insurance: The Road to Reform:

Public Policy Paper Addendum

This paper builds upon the research and conclusions of the public policy paper about the debate of federal versus state regulation written earlier this year. This paper was written specifically to target the needs and concerns of NAMIC's farm mutual insurance company members.

"From the consumer's perspective, the state system of regulation has performed admirably throughout its history," said Chuck Chamness, NAMIC's vice president, public affairs. "State insurance regulation has been adaptable, accessible, and relatively efficient, with rare insolvencies and no taxpayer bailouts."

"State regulation obviously presents problems for the insurers it regulates, particularly larger companies that do business on a national scale and must comply with inconsistent regulation across 51 different jurisdictions as well as rate regulation that often deprives consumers of choices and keeps prices artificially high," said Roger Schmelzer, NAMIC's vice president - regulatory affairs. "However, there is no guarantee that any proposal that requires congressional approval will produce the results federal advocates seek, much less good public policy. State regulation can be slow to act, but we can reform it."

The paper identifies the National Conference of State Legislatures (NCSL) as a means to accomplish rate modernization, market surveillance, solvency and company licensing reforms in the states. NCSL has established a Task Force to Streamline and Simplify Insurance Regulation that will make recommendations to state legislatures before the end of the year.

NCSL members are elected state officeholders, including leaders of the National Conference of Insurance Legislators, and they enjoy the support of the National Association of Insurance Commissioners. "NAMIC believes the NCSL process has serious merit because its members have obvious influence over the outcome of legislative proposals," Schmelzer observed.

One of the strongest arguments for rejecting a federal role in insurance regulation is the likelihood that an act of Congress originally drafted for relatively narrow reasons could result in expansive new demands on the property/casualty industry.

"Even advocates of federal charters concede that a new community reinvestment obligation for insurance, or other burdensome social regulation, is likely to be included in a new law," stated Chamness. "Legislation to create a federal or dual charter would also add regulatory layers to the current system of insurance regulation."

The paper observes that while federal regulation can bring us closest to uniformity in regulation, a mistake by a single national regulator has significant economy-wide consequences. Even federal uniformity is not the panacea that it initially appears to be. The federal government will have to promulgate and interpret a large body of regulation and there is no guarantee the various federal district courts will agree on final interpretations.

The paper begins with a basic question: Why regulate? There are two primary reasons to regulate the private sector, according to the paper: protection against market failure, and public interest activities such as gathering consumer information. A third purpose, social regulation, which requires business to address society's issues, is not an accepted reason to regulate, but it is often imposed on business and increasingly so at the federal level.

NAMIC distributed Regulation of Property/Casualty Insurance: The Road to Reform to more than 1,300 member companies, selected members of Congress, state legislators, federal and state regulators, academics, think tanks, and the media.