A report by Fitch Ratings said that federal regulation of the insurance industry is probably inevitable, but that regulation would not necessarily bring benefits quickly to both the industry and consumers.
"Fitch believes increased federal regulation of the insurance industry is inevitable in the long term," the report said. Strong opposition by several influential insurance associations, election-year politics and divisiveness in Washington would prevent passage of any federal proposals in the short term, the report added.
A single regulator would conceivably benefit life and annuities markets the most and help reduce or eliminate redundancies and inefficiencies caused by state regulations. Passage of an optional federal charter, however, could have the effect of causing insurers "overlapping and confusing state and federal requirements."
Fitch added it is taking no position on an OFC, wishing to remain neutral on the issue.
From a rating standpoint, Fitch said passage of an OFC would not have an immediate effect and it would evaluate the "regulatory landscape over time," making changes when needed.
A uniform regulatory environment would "spur innovation by removing multiple approval barriers that delay widespread introduction for new products and result in expense savings for multistate insurers." These savings, Fitch believes, would ultimately be experienced by insurers and may produce a less cyclical market by promoting market oriented pricing.
There are some doubts, Fitch said, that a federal regulator would fully adopt free-market pricing universally in all markets because of political pressure to control rates.
On the foreign side, it would give U.S. insurers the ability to compete in the international services marketplace.
Fitch said it "is not convinced that federal regulation will by definition be better regulation, and [it] may just turn out to be more regulation."
Treasury's support of an OFC as part of a larger financial services modernization plan "improves the impact of ultimate passage," which is more likely "than at any point in recent history." Treasury restated its belief that this would not happen in the short term.
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