Reform Insurmountable Without Feds

But few details of what the committee has in mind were released. During an earlier speech, Rep. Oxley outlined a conceptual framework, which he called a "road map," calling for an incremental approach using federal tools to force states to adopt regulatory reforms. But the framework was not fleshed out during the March 31 hearing.

Rep. Richard Baker, R-La., who chairs the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, said if the committee is going to follow an incremental approach, there will have to be some federal enforcement mechanism. He called this approach "incremental with weaponry."

Representatives of the Kansas City, Mo.-based National Association of Insurance Commissioners pledged to work with the committee. Ernie Csiszar, NAIC president and insurance commissioner for South Carolina, said that NAIC wants to be a partner in the process and will keep an open mind when the details are released.

The fact that the committee is considering legislation will by itself encourage states to take action on reform, he predicted. "We know we have some problems," he said. "We know reform is needed." During his testimony, he outlined the variety of initiatives already underway at NAIC to respond to concerns over speed-to-market, uniformity and market-based rating.

He cautioned, however, that state insurance markets are not the same. In particular, he said, property-casualty insurance is tied to state tort laws as well as demographics, such as whether a state is primarily industrial or rural. He said consumer problems are also local in nature.

Rep. Paul Kanjorski, D-Pa., a senior Democrat on the committee, questioned the pace of change, complaining that it seems insurance regulatory reform is always years away. "I'm starting to lose confidence that all 50 states are capable of coming together and solving these problems," he said.

But Mr. Csiszar said that any type of national oversight would eviscerate state regulation. As for the pace of change, he said, the proof is in the pudding. "We must deliver," he said. If five years from now the states have not achieved regulatory reform, he told the committee, "you can hammer me over the head."

Mr. Csiszar said it is also important to recognize the accomplishments of state regulation, insisting the system really works quite well. So far, he said, insurance has not experienced some of the problems faced by other financial services sectors, citing the savings and loan collapse, the mutual fund scandals, and the Enron debacle.

As for an optional federal charter, Mr. Csiszar said it would be the worst of all possible solutions. There are all kinds of problems with OFC, including what to do about premium taxes and guaranty funds. Moreover, he said, insurance regulation is different from banking regulation. (The dual-chartering banking system is often cited as the model for OFC in the insurance industry.)

Insurance is a mandated product, he said, in that states often require car owners to buy auto insurance and lenders require home buyers to purchase homeowners coverage. Insurance, he said, is treated as a "nuisance" purchase consumers buy it hoping they won't have to use it.

Consumers, he said, are not getting anything more from an insurer than a promise. The basic issue, he said, is what kind of regulatory process will assure that the promise will be fulfilled.

Overall, he reiterated, state insurance regulation has preformed well. He added that he could not comment on the road map presented by Rep. Oxley because it is still conceptual in nature.

Reproduced from National Underwriter Edition, April 2, 2004. Copyright 2004 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.