State lawmakers finally took off the gloves this week and joined forces to fight those who believe the federal government would be a better regulator of carriers and brokers than local insurance commissioners, and that industry players should at least have the option to pick their poison and go with a federal charter.

Yesterday, we reported that the National Association of Insurance Commissioners, National Conference of Insurance Legislators and the National Conference of State Legislatures declared a united front to keep insurance a state-regulated industry. (Click here for the full story.) It's about time.

The number-one job of state insurance regulators is to protect consumers,” said NAIC President Sandy Praeger.”However, it is not merely enough for us to effectively and efficiently regulate the business of insurance. It is just as important for us to proactively educate consumers and continuously advocate on their behalfwith state, federal and international regulators and policymakers.

Ms. Praeger, the Kansas insurance commissioner, had plenty more to say last week, when she released a scathing letter to the president of the American Insurance Association, reiterating her opposition to an OFC. (Click here for the complete story.)

The war of words began when AIA President Marc Racicot–no stranger to state regulation, being the former governor of Montana–wrote to Ms. Praeger in response to an article she ran on Feb. 7, Federal Bill Unnecessary, on her insurance departments Web site. (Click here for the article.)

In his letter, Mr. Racicot said AIA believe progress on reforming state regulation has been uneven and has come about slowly.” Insurers need a modern and efficient regulatory structure, he added, arguing that the only way to accomplish that is by offering a federal charter, which could be administered without much of a fuss or major cost in Washington.

Ms. Praeger begged to differ. She wrote back that it takes quite an imagination to assume the Treasury Department could assume even a partial role in regulating insurance without creating a huge bureaucracy. But her main concern, she noted, is that an OFC would give insurers the opportunity to opt out of state market conduct laws.

Current proposals would gut consumer protection while outsourcing most critical regulatory functions to an industry-run self-regulatory organization, she said, charging that letting carriers pick their supervisor would lead to a race to the bottom.”

Indeed, wouldn't giving carriers a choice about who should regulate them be a little like giving kids a choice about who should discipline them–mom or dad–after a divorce, allowing the unruly child to play one parent off against the other, before settling in with whichever one gave them the most lattitude and the least hassle?

“The push for an OFC is, in reality, nothing more than a call for little or no regulation, according to Ms. Praeger.

The state regulatory system is Byzantine, no doubt about it. It needs further reforms, for sure. But I have yet to be convinced that an optional federal charter is the answer. Far better, if uniformity is the biggest concern, for Congress to set national regulatory standards for state insurance departments to follow. Leave the hands-on regulation to the states until Uncle Sam proves he can handle it better.

What do you folks think?

Special Reports /

States Tell Uncle Sam To Butt Out!

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