Senator Blasts Insurers, Pushes For Fed Regulation

Speaking at a Senate Commerce Committee hearing on insurance regulation, he added that the McCarran-Ferguson Act, which establishes state regulation of insurance, is not working.

Insurance companies, historically, have said they support state regulation, he said, but time and time again they go to the federal government seeking federal action on product liability reform, flood and crop insurance, and now terrorism insurance.

Every time the insurance companies go to the Hill, Sen. Hollings said, they insist that losses are too high. They refuse, he said, to write coverage on little league teams because of the fear of lawsuits.

But the fact is, he said, that lawsuits are not the cause of the premium increases. Rather, he said, the cause is investment performance.

When the investment markets are up, he said, the industry says "sell, sell," and doesn't care about the premium. The industry just wants the cash, he said.

But then, Sen. Hollings said, when the market turns, the industry goes to Capitol Hill and demands tort reform.

"I can't find out what is the truth," he said.

Sen. Hollings is sponsoring legislation, S. 1373, which would establish federal insurance regulation. Only insurance companies that do business exclusively in one state would be exempt from federal regulation.

Both rates and forms would be subject to prior approval regulation.

"There is no doubt real federal regulation of insurance?not optional federal charter, which would allow each company to choose their regulator?would benefit the industry, the consumer and the stability of our overall economy," Sen. Hollings said.

But South Carolina Insurance Commissioner Ernst Csiszar, who spoke on behalf of the Kansas City, Mo.-based National Association of Insurance Commissioners, said that by and large, the state system has worked.

The fear, he said, is that with federal intervention there could be two systems, which may be good for insurance companies, but would be bad for consumers.

Moreover, Mr. Csiszar said, citing the savings and loan debacle as well as other bank failures, the federal government has not done all that well when it comes to financial regulation.

The NAIC, Mr. Csiszar said, is working hard to respond to the changing nature of the marketplace and the convergence of financial products. NAIC, he said, understands the need for product innovation and pricing flexibility and is developing a more market driven approach to regulation.

He emphasized that effective consumer protection that focuses on local needs is the hallmark of state regulation.