Regulators: Time For Feds To End State Wars

Mr. McCarty said big states, such as California, New York and Texas, by failing to act more in harmony with other states had thwarted attempts by the National Association of Insurance Commissioners to iron out kinks in supervision. Mr. Wooley agreed, saying regulation is ultimately a battle between big and small states, adding that this was why federal regulation is needed.

They and other panelists discussed development of a universal form of insurance regulation and how a federal insurance component can be created without destroying the state system.

Both Mr. McCarty and Mr. Wooley said more regulators are realizing they must bring cohesiveness to the system or accept a federal component for regulation.

Mr. Wooley said, "I think more and more [insurance] commissioners understand that there is need for change," adding, "It is crazy today that we have 51 separate jurisdictions and 51 different rules. It does not make sense for this marketplace today."

"We need standards or Congress is going to do it," he further remarked.

Mr. McCarty criticized the NAIC for its slow progress in coming up with interstate regulatory efficiency, remarking that the initials NAIC have come to be known as "No Action Immediately Contemplated."

"There is still the need to break down barriers," said Mr. McCarty. "However the time of success [before Congress steps in] is a very short window."

"I believe leaders in the industry and commissioners understand the need for change and that there will be some measure of success that will be carried on in the following years," he added.

Paula Davis, deputy commissioner of insurance in Louisiana, said her state is one place where these barriers are coming down as it moves toward more and more deregulation of the industry.

"Louisiana is being progressive and aggressive in reform," she said, which is an accomplishment in a system that has been closely regulated for years. "We want to be on the front end of reform and are working closely with legislators and agents to improve the system."

She noted that the state actively encourages its staff to look at what is working in other states and implement it in Louisiana.

Charles Cohen, former commissioner of insurance in Arizona, now in private law practice, said he had always taken a pragmatic view toward regulation and that some form of federal oversight would be inevitable. He remarked that he felt the NAIC is too polarized to do the job.

"The system we have now is anachronistic," he said. "The world is changing and the system is not. The system is getting worse and worse as time goes on."

"Under this environment regulators should be out front and leading change, instead of some who are sitting on their butts and resisting change," he remarked.

However, he recognized that the process is a cumbersome one and said he believes the best way to accomplish the changes needed would be to split the regulatory interests into three different levels: local, national and international.

"We need good national uniform standards and sensible and effective regulations to effectuate the regulatory changes," he said, adding ultimately this would have to come from Congress in some fashion.

However, while saying there needs to be some federal intervention, panelists cautioned that what form that should take remains a big question.

Andrew Frazier, president of Western World Insurance Company and the panel moderator, observed an overall pessimism on the part of the regulators that the issue could not be resolved without federal intervention, which no one on the panel disputed.

Mr. Cohen said, whatever the resulting system, it should not destroy the state system of oversight.

"To throw that away would put us back in the stone age," commented Mr. Cohen, adding that it would be "incredibly disruptive to the economy" because there is no expertise there to regulate insurance.

Ms. Davis noted that one failure of a federal oversight system would be how quickly it could get to resolving consumer issues, which in Louisiana are resolved within 90 days.

Mr. McCarty cautioned that once the federal government comes in, a negative consequence that could result is that it would be blind to any state experience.

"Even very conservative Republicans in Washington believe that all knowledge emanates from Washington," he remarked.