Federal Chartering ProposalsPut Chaos Theory To The Test
The headline on this week's cover asks whether federal chartering is the answer. The question is what is the best system to regulate insurance? The industry is split in its response.
At least two major carrier groups and one big broker association favor giving players a choice between state and federal oversight. These people feel that state regulators have had more than a fair chance to get their act together, and now is the time to offer a federal alternative. However, other company and agent groups believe that state regulation has best served the insurance industry and their consumers, and will continue to do so.
This conflict within the industry is just one reason why the odds of getting a federal chartering bill through Congress this year are slim. A second reason is that Congress is preoccupied with more pressing matters in an election year. A third is that it is unlikely the federal government would authorize a new regulatory agency at a time of shrinking tax revenues and soaring budget deficits.
Still, backers of federal chartering concede that this is not a make-or-break year. They recognize that to create a federal oversight system, it will take a multi-year campaign.
But even speaking long-term, while we remain open to the idea of a better regulatory system–even a federal one–we are not yet convinced about the need for so radical a change.
State regulators have done a relatively good job supervising solvency and market conduct, thus protecting consumers. They also have worked well together over the past few years to better coordinate their efforts, improve regulatory efficiency, and cut costs.
True, they have not moved nearly as quickly as the industry would like, but their progress has been substantial. They should be given more time to advance their reform agenda.
We also warn backers of federal regulation to be careful what they wish for. If Congress takes up federal chartering, there's no telling where it will lead. As the industry painfully learned when it put forth a federal terrorism reinsurance proposal, once Congress gets its hands on a plan, the final product does not necessarily look anything like the original, or represent something the industry would support.
Washington is chaos theory in action, meaning that no matter what grand plans federal chartering proponents have, Congress could end up making the industry's life miserable.
The theory, of course, is that an optional chartering system would give insurers an escape route in case federal regulators engage in overkill. But once the federal government dips a toe into insurance regulation, they might jump in with both feet and impose a mandatory system.
Since Congress is unlikely to do more on federal chartering than hold hearings in 2002, the National Association of Insurance Commissioners, as well as those in the industry who back state regulation, have at least a year to demonstrate that state insurance departments are indeed prepared to make the changes necessary to keep the feds out of insurance oversight.
They must speed up reform efforts to maintain their credibility, or face the prospect of Uncle Sam looking over their shoulders sometime in this decade.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 28, 2002. Copyright 2002 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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