Insurers, Agents Air Views On Federal Regs

A representative of Hartford Financial Services, Hartford, Conn., however, called for optional federal chartering, saying that federal regulation will do a better job of meeting consumer demands and safeguarding the solvency of insurers.

On the producer side, Markham McKnight, president of Wright and Percy Insurance of Baton Rouge, La., and chairman of the Government Affairs Committee of the Washington-based Council of Insurance Agents and Brokers, said it is critical to the long-term viability of the U.S. insurance industry that Congress create OFC for insurers.

But Tom Ahart, president of Ahart, Frinzi & Smith of Phillipsburg, N.J., and a past president of the Alexandria, Va.-based Independent Insurance Agents and Brokers of America, said that OFC would carry a high cost and the best characteristics of state regulation would be lost.

He called for federal legislation that would reform state regulation but not dismantle it.

John Fitts, deputy general counsel with Progressive, said that while the state regulatory system generally performs several functions very well, there are inconsistencies in the nature and quality of regulation state-to-state.

The problem, he stressed, is not state regulators or the Kansas City, Mo.-based National Association of Insurance Commissioners. Rather, Mr. Fitts said, the problem is systemic, relying on 50 state legislatures to act uniformly.

He said that Progressive does not currently support OFC or federalization of insurance regulation. This, he said, would be expensive, disruptive and seemingly unnecessary to achieve the goals of modernization.

Rather, Mr. Fitts said, the best approach is preemptive federal standards covering producer and company licensing, speed-to-market, and market conduct.

"With federal standards, there are tremendous opportunities to reduce costs and enhance competition without sacrificing consumer protection," he said.

Jason A. White, chairman of Medmarc, agreed. "Done effectively, federal standards would promote common interpretations of compliance, licensing and other key parts of the state regulatory system," he said.

Mr. White said Medmarc supports state regulation of insurance, but it should become more rational to accommodate and sustain small insurance companies. State regulation, he said, is not any better or different for large insurance companies, but large companies have more resources to cope with the problem.

But Neal S. Wolin, executive vice president of Hartford, said he believes the best solution is OFC.

"I am convinced that federal regulation will do a better job meeting consumer demands, provide for more competitive pricing and safeguard the solvency of insurers," he said.

But he emphasized the word "optional."

"If state, regional or national insurers believe that their customers and the marketplace will be better served by the NAICs present pace of improved state regulation, they will have that choice," Mr. Wolin said.

Mr. Wolin noted that the federal government already regulates insurance to a significant degree. Congress, he said, is increasingly addressing societal issues such as terrorism, asbestos and litigation abuses. Moreover, he said, federal tax legislation often governs the ability of U.S. companies to compete.

Mr. McKnight, CIABs Government Affairs Committee Chairman, agreed, saying that OFC is necessary to enable the insurance industry to compete in the larger financial services industry and also to be able to compete internationally.

But he said that while Congress is resolving the OFC debate, there are areas where immediate reforms would be relatively easy to implement and would produce great benefits.

First, Mr. McKnight said, Congress should mandate that all 50 states enact uniform producer licensing laws. These laws should permit a producer licensed in one state to be licensed in all other states on a reciprocal basis. In addition, all state laws discriminating against nonresident producers should be preempted, he said.

If the states cannot create a uniform system covering every jurisdiction, he said, a self-regulatory organization should come into being that would streamline the system and create a single set of licensing requirements.

On speed-to-market, Mr. McKnight noted that it can take up to two years for a new product to be approved for sale on a nationwide basis. Congress, he said, should either directly limit the authority of states to pre-approve products or create incentives for states to do it on their own.

Finally, Mr. McKnight said, Congress should preempt state laws that discriminate against or limit alternative markets such as surplus lines. In addition, it should expand the Product Liability Risk Retention Act to allow risk retention groups to write coverage for property damage as well as liability exposure.

Mr. Ahart of IIABA questioned whether OFC is a practical answer to the issue of regulatory modernization.

He questioned whether a single regulatory system could harmonize the diversity of underlying state reparation laws, varying consumer needs from one region to another and the differing public expectations about the proper role of insurance regulation.

"The potential responsiveness of a federal regulator to both industry and consumer needs in several critical areas could therefore jeopardize the fundamental purpose of insurance regulation and must be considered questionable at best," he said.

Mr. Ahart said that IIABA is developing a proposal that would use federal legislation to bring about greater consistency and other reforms across state lines while maintaining state regulation. When fully developed, he said, the IIABA proposal would create more uniformity and efficiency in producer licensing product approval and rate and form review.

"If the IIABA proposal were to become law, I believe it would remedy 95 percent of the problems with the current regulatory system," he said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, November 14, 2003. Copyright 2003 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.