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In her article in the April 20 edition of the New Orleans Times-Picayune, Rebecca Mowbray posed a stark question: “In dealing with all the insurance problems that arose with Hurricane Katrina, would it have made a difference for Louisiana homeowners if a federal insurance regulator in Washington was calling the shots rather than a state insurance commissioner in Louisiana?” What do you think?

In her article, Ms. Mowbray reported that “consumer advocates, homeowners insurance agents and state insurance commissioners say that it would have made the situation worse to have had someone in charge who was unfamiliar with local conditions, and likened it to problems with the Federal Emergency Management Agency.”

Yet others, she noted, “believe that federal regulation might have made a difference. Switching from a patchwork of individual states to one giant pool of 300 million people zoned by geographic risk might have helped reduce the crunch of insurance availability after Katrina, and a powerful federal regulator would have real leverage to keep rogue companies in line.”

(To read the full article, click here.)

One source in the story who has no love for state insurance regulation is Tom Baker, director of the Insurance Law Center at the University of Connecticut School of Law, who told Ms. Mowbray that “the idea that you're not left out in the cold with state regulation is demonstrably untrue.”

Mr. Baker went on to argue that “if company X said, 'I don't want to write in Louisiana anymore,' a federal regulator could say, 'Well, I'm not sure I'm going to let you write in New York. The regulator in Louisiana doesn't have anything to trade with for the insurance companies.”

The article raised another interesting issue. “As conspiracy theories have swirled since the storm that insurers colluded through their adjustment software to depress payout values for repairs,” Ms. Mowbray writes, “federal regulation might have brought powerful federal antitrust laws to bear on the situation, because [Marc Racicot, president of the American Insurance Association, which strongly backs an optional federal charter] said that any companies that would opt for a federal charter would give up their federal antitrust exemption.”

Many other issues are raised in the article, which I urge you to read. These are the arguments that will be front and center in Congress this year during hearings and debates on whether to create an insurance information office within the Treasury Department as a first step toward establishing an OFC.

I remain skeptical about the federal government's ability to do a better job than the individual states when it comes to insurance oversight. As I've said in this space before, state regulation, while often sluggish and inefficient, has done a good job protecting consumers. If a catastrophe-prone state is struggling to maintain affordable coverage, perhaps a national cat fund could be considered as a reinsurance backstop, but that doesn't mean Uncle Sam must regulate the entire business.

What do you folks think?

Special Reports /

Would A Federal Regulator Have Helped New Orleans?

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