State Regulator Indicts Federal Regulation Idea

Mr. Csiszar in the course of his talk pointed to elements of existing federal regulation he views as costly and burdensome, and urged his audience to put extreme pressure on state regulators for changes to improve their operations.

Last July, U.S. Sen. Ernest F. Hollings, D-S.C., introduced legislation that would create federal regulation of insurance for all carriers that engage in interstate business.

The legislation, S. 1373, would establish a five-member Federal Insurance Commission to establish licensing and financial standards for the insurance industry, regulate rates and policies, oversee solvency, investigate market conduct, and establish accounting standards.

Mr. Csiszar, who is an immigrant from Romania, said the supposed benefits of federal insurance regulation caused him to recall what he had seen while growing up in a socialist country.

"This debate of federal versus state reminds me of my childhood in Romania, when we all had to read Karl Marx," Mr. Csiszar said. "When you read the vision of communism from Karl Marx, it's absolutely a wonderful world, but it's a utopia," he said.

The reason for such comparison, Mr. Csiszar added, is that he has a good idea what the federal system is going to look like: a bloated bureaucracy overseeing a social program.

He pointed out that according to NAMIC, the cost of federal insurance regulation, including the cost of lost opportunities, would be somewhere between $800 billion and $1.5 trillion across the U.S. economy. "That would be between eight cents and 15 cents of every economic dollar produced in this country."

Mr. Csiszar also said there is plenty of evidence that federal over-regulation hurts the economy. One only needs to look through the U.S. Federal Register, which publishes regulations from the U.S. government, to see the ever-increasing number and scope of federal regulation. Last year, Mr. Csiszar noted, the Register had a whopping 75,606 pages, compared to 15,000 pages from President Kennedy's administration.

Another example of federal over-regulation can be found in the Sarbanes-Oxley Public Company Accounting and Investor Protection Act of 2002, he added. "Forbes magazine called Sarbanes-Oxley the criminalization of risk taking and capitalism. Sarbanes-Oxley alone is estimated to cost $15 billion per year," Mr. Csiszar said. "And by the way, that doesn't include the cost of accounting bills your company is going to get–you will see 25 percent-to-100 percent increases in your auditing bill as a result of Sarbanes-Oxley."

And if a federal insurance regulation ever comes about, it will quickly create a bloated bureaucratic system, he forecast: "To see what it will look like, let's look at two relatively new departments in Washington that came about under President Carter: the energy department and the education department. Both of them now have over 15,000 employees."

Mr. Csiszar also discussed the U.S. pharmaceutical industry, which also has to go through the pre-approval process for its products. "I understand that drugs are different from insurance policies, but nonetheless, let's keep in mind that it takes 10 to 12 years to get a drug approved," he said. "If you wonder why those drugs are so expensive, it's because a drug patent only lasts for 21 years, but it takes 10 to 12 years to get it through the federal process."

Another federal program that Mr. Csiszar pointed out as ineffective was the U.S. health care system. "Look at health care–it's really good at shifting the cost from the public sector to the private sector. Medicare is nothing more than a cost-shifting program–you would be looking at the same thing in insurance."

Mr. Csiszar also said there is already a great example of ineffective federal systems in the insurance industry. "If you really want to talk about insurance, well, we have a flood insurance program out there. Lately, when I look at that program, that to me is not an insurance program. That to me is a social program, which is another thing our federal government is very good at," he said.

"If you are an underwriter, try underwriting under our flood insurance program," Mr. Csiszar added. "Why do you think people rebuild the same house three and four times at the same cost and you can't charge more? It's a social program."

He also called crop insurance the "same damn thing," and said that crop insurance "benefits the 10 largest farmers in Texas and Oklahoma. It doesn't benefit anybody else."

What everyone is looking for is change, Mr. Csiszar noted. "I think the absolute best way in which you can proceed about change is to force us at the National Association of Insurance Commissioners to hold a club over our heads, to knock us over the head, and to keep us moving and keep pushing," he argued.

"Use National Conference of Insurance Legislators, use National Conference of State Legislatures, use every tool in your bag, because that's the only way you are going to get change and that is also the best way to get better regulation."