Think Tanks Dispute Need For State Insurance Regulation

NU Online News Service, April 10, 2:57 p.m. EDT

WASHINGTON--Reasons for supporting state regulation of insurance voiced by some governors don't withstand detailed scrutiny, officials at several Washington conservative think tanks said in a letter to congressional leaders.

Officials at the Competitive Enterprise Institute said leaders should "thoroughly review" calls for federal regulation of insurance, but not necessarily "reject it" as some governors are asking.

Thirty-three governors wrote the leaders of the House Finance Committee and Senate Banking Committee on March 23 asking them to "review, and ultimately reject, congressional efforts to create an Optional Federal Charter for purposes of regulating the insurance industry."

The governors said they understood a need to modernize the state regulatory system and asked to be part of Congress' regulatory reform process.

The think tanks' letter was also sent to the chairman and ranking minority members of the Senate Banking Committee and House Financial Services Committee.

It was signed by Eli Lehrer, a senior fellow at CEI; Wayne Brough, vice president and chief economist at FreedomWorks; and Steve Pociask, chief economist at the American Consumer Institute. All three groups are based in Washington.

The three organizations said they reject the assertion "that states...often lead the way with regard to reform and innovation and this is true of insurance regulation."

They said the state insurance regulatory system "has not served the interests of innovators or consumers well" because "no fundamentally new personal lines insurance products have become available since modern all-perils homeowners' insurance first became available in 1959."

The letter contended, "The personal lines property and casualty insurance products sold today ... are fundamentally the same as those sold in the early 1960s."

It also rejects claims by the governors that the "state regulatory system...has remained sound despite the catastrophic disruptions we have witnessed as a result of failed federal oversight and regulation."

This is not correct, the letter said. "The soundness of the state regulatory system remains unproven."

It said that New York, whose governor is not among the signers of the letter sent to Congress, had authorized American International Group to raid its property and casualty subsidiaries for funds when the company nearly collapsed last fall.

"Recent reports, likewise, indicate that many of AIG's other state-regulated subsidiaries have financial problems of their own." the letter said.

"The state-level insurance system, in short, has not avoided the problems that have afflicted other financial sectors," the letter said.

The letter also rejected assertions by the governors that under the "Treasury model," states stand to lose revenue generated from current fees and assessments.

"The potential outcome of such actions could further endanger our ability to provide critical health care, education and unemployment resources to citizens of our respective states," the governors argued in their letter.

But, the think tank officials claim, the legislation they are talking about was proposed under the Bush administration, and is "something that the Obama administration appears [un]likely to enact without changes."

The latest measure, introduced before the recent congressional recess by Rep. Mellissa Bean, D-Ill., and Ed Royce, R-Calif., would let states keep the premium taxes assessed on insurance companies," the letter said.

The authors of the letter said that under the Bean/Royce bill, states would also continue to collect the "assessments" levied against companies for insolvencies and support of state level residual markets.

"It's extremely unlikely that any state will see any significant impact to its revenue as a result of any proposal," the letter argued.

In short, the letter concluded, "many of the key claims that the governors make lack a sound evidentiary basis."

The authors of the letter said, "Many factors ought to play into the support or opposition to proposed federal regulation and the governors do make many legitimate points. But a truly thorough review requires additional analysis and oversight."

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