Reaction Mixed To AIA Federal Charter Plan
Washington Editor
The property-casualty insurance industry remains sharply divided over state versus federal regulation in the wake of the decision by the American Insurance Association last week to actively pursue a federal chartering option for insurers.
Reactions to the decision by the Washington-based AIA ranged from strong support to disappointment.
The Washington-based Council of Insurance Agents and Brokers offered the strongest backing to AIA. "We support the AIA without reservation," said Council President Ken A. Crerar, who called optional federal chartering "perhaps the most fundamental and important issue affecting regulation of the insurance industry."
Mr. Crerar noted that in the early 1990s, AIA broke new ground by backing the concept of a federal charter. "At the time, theirs was a minority viewpoint and a courageous one," he said, adding that he hopes the AIA action will move the political dynamic forward and help keep states focused on the urgent need for market-based regulatory reforms.
But Rodger S. Lawson, president of the Alliance of American Insurers in Downers Grove, Ill., disagreed with AIAs support for federal chartering. "We are disappointed with this shift in AIAs position, particularly since we have historically worked with them to improve the state regulatory system," he said. "We hope that this will not lead to a future abandonment of these efforts."
Mr. Lawson said the Alliance does not agree that the federal government will be a more benign regulator or that total federal preemption is obtainable. "We believe that there would be additional political costs that are not clearly understood," he said. "Once a majority of insurance companies fully realize the ramifications of this federal chartering initiative, we are confident that they will oppose it."
Maria Berthoud, vice president of federal affairs for the Alexandria, Va.-based Independent Insurance Agents of America, said she is not surprised by the AIA support for optional federal chartering. However, she added, those who work every day in the real world market recognize that this plan will not work.
Federal chartering might make sense on the life insurance side of the business, she said, because of the nature of life products. But on the p-c side, she said, it would be too complicated, cumbersome and bureaucratic.
The National Association of Independent Insurers in Des Plaines, Ill., issued a statement on AIAs decision, noting that NAII supports state regulation of insurance and opposes federal encroachment. However, NAII said, state regulation must improve, adding that Congress must give states ample time to make the necessary improvements.
Still, NAII said, it is carefully studying other options, including the AIA proposal, with an open mind.
Kathleen Sebelius, president of the Kansas City, Mo.-based National Association of Insurance Commissioners, said that AIA has been a great partner for the NAIC during the past 17 months in working on regulatory reform. NAIC members recognize the need for change, she said, and have embarked on a national drive to bring greater uniformity, uniform application, efficiency and effectiveness to insurance regulation.
"Despite the AIAs action, our focus will not change nor will we yield our mission of safeguarding consumers across the country, knowing that they are and will continue to be well served by the states," said Ms. Sebelius, who is the Kansas insurance commissioner.
Under the AIA plan, federally-chartered insurers would be freed from rate and form oversight. However, the industrys antitrust immunity would be eliminated for most ratemaking activities.
Federally-chartered insurers would also be exempt from state licensing, solvency and market conduct laws. Instead, an office called the Federal Insurance Chartering Director would be established within the Treasury Department with authority to establish capital and surplus requirements, take action against financially impaired companies, promulgate unfair claim and marketing practice standards, engage in market conduct examinations and levy fines.
Federally-chartered insurers would still have to comply with state premium tax laws, pay all required state assessments and participate in state guaranty funds.
Leigh Ann Pusey, senior vice president of government affairs for AIA, said AIA decided to consider a federal role due to changes created by the Gramm-Leach-Bliley Financial Services Modernization Act, dynamics in the marketplace, and frustration with the current system.
AIA anticipates, she said, that as it pursues federal chartering on Capitol Hill, challenges will arise to try to impose the Community Reinvestment Act and similar types of requirements on insurers. AIA, she said, is prepared to fight these challenges. However, she added, there are no guarantees about the outcome, and there may well have to be trade-offs.
If AIA achieves success in streamlining the present system, she said, there might be a willingness among members to look at other issues.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 30, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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