Anyone who isn't shaken by the events that rocked the financial markets over the past couple of weeks must have ice water in their veins. Congress got the bum's rush to cough up $700 billion to bail out those who shamelessly placed our entire economy at risk with reckless loans, shaky securitizations and worthless financial guarantees. I think these clowns have a lot of nerve, especially since few would have touted the wonders of federal intervention–at least not while they were sober.

It was in this context I moderated “The Great Debate: Federal Versus State Regulation,” as part of our company's second annual Virtual Conference. Details appear on page 7, and you are welcome to listen firsthand by registering free at http://presentations.inxpo.com/Shows/Summit/09-08/Registration/agenda.htm.

American Insurance Association President Marc Racicot faced off against North Dakota State Rep. George Keiser, secretary of the National Conference of Insurance Legislators, and it was quite a verbal battle. (I want to thank Rep. Keiser for stepping in at the last minute as a substitute for the president of the National Association of Insurance Commissioners, Sandy Praeger of Kansas, who could not make the taping due to pressing business involving fallout from the AIG fiasco.)

Both made strong cases for their respective positions, with AIA pushing hard for an optional federal charter, and NCOIL adamantly opposed.

Mr. Racicot, as former governor of Montana, is no stranger to state regulation, but in his new role, he advocates freeing the Gullivers in his industry from the restraints imposed by the 56 Lilliputian insurance jurisdictions in this country. He wants insurers to be able to opt for a single set of rules under one federal regulator, so that they might get products to market faster and more cost-efficiently.

He also wants to see a federal regulator take control of all negotiations on global insurance trade agreements, which he notes is Uncle Sam's clear right and responsibility under the U.S. Constitution.

Rep. Keiser objects strenuously to an OFC, arguing that state regulation has produced the most competitive and safest insurance market in the world, and that Washington cannot be trusted to take over–certainly not after seeing the deadly economic trapdoors triggered by mortgage lenders and investment bankers.

Mr. Racicot dismisses such concerns as a “red herring,” arguing that the shenanigans that have brought our economy to near ruin were in fact not regulated by either the federal or state governments.

But what about the savings and loan crisis? Rep. Keiser countered. Washington was clearly in charge in that case, yet the taxpayers ended up bailing out S&Ls to keep the real estate market from collapsing and taking our entire economy down with it.

Rep. Keiser may be a bit too sanguine in suggesting that Mr. Racicot's main point–that state regulation is hopelessly complicated and inefficient, unnecessarily hamstringing insurers from getting new products to consumers and competing globally–is exaggerated.

But Rep. Keiser's best counterargument was that while the state system may be makeshift, few carriers go broke, even after monster hurricanes. Market conduct is adequately policed and consumers are protected. We have a very competitive market with lots of players.

Is there a price to pay in terms of inconvenience, and perhaps even added cost? Yes, but given Uncle Sam's track record, and with all the crises on Washington's plate, is this the time to trust the feds to assure the solvency, or honesty, of my insurance carrier? I'm not so sure.

What do you folks think?

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