States Rights & Making A Marriage Work
Although the major catalyst for the Civil War was slavery, the underlying principal that drove this nation toward that epic battle was the concept of states' rights.
The Civil War ended, but the battle over states' rights was far from over. Indeed, states' rights was the justification that for generations protected the despicable practice of segregation known as Jim Crow. Thankfully, those ugly vestiges of racial discrimination are no longer enshrined in law or protected by our civil and business institutions.
Yet even the legal victory over racial segregation did not end the argument over states' right. In fact, that debate is still raging today in many areas among them, insurance regulation.
For business in general (and insurance is no exception), one of the biggest concerns is globalization. The interconnection and interaction of businesses nationally and internationally have convinced many of the state-friendly, normally conservative elements of the insurance industry especially among the leaders in the agent and broker community, many of whom place business globally that to compete and prosper, they must have the freedom to sell and service insurance products without having to clear costly regulatory hurdles maintained by the individual states.
However, this practical business desire runs up against the parochial concerns of 56 states and American territories that have a vested interest in preserving what has been their traditional domain for a number of decades the regulation of insurance.
Because of the diversity of interests within these 56 U.S. jurisdictions, it is easier to do business in some places than in others. Sadly, some brokers probably have an easier time placing the same commercial business accounts in Germany and France than they do in Iowa and California.
I can't think of any group within the insurance business even state regulators who believe that regulation of the industry should remain exactly as it is. In the producer community, a growing number have opened their minds to the possibility of a federal oversight role. The question is, what will that role be? Can the power of the Feds be limited once they have their foot in the door?
From the brokers' perspective, a key insurance provision in the Gramm-Leach-Bliley Act was thought to be a good compromise that would take care of the problem. It essentially forced a supermajority of states to come up with a uniform code of broker licensing, or else the Feds would step in and create a national registry.
Using free market theory, the unspoken desire was that if two-thirds of the states opted for licensing reciprocity which was the target that had to be met to prevent federalization the remaining holdouts would adopt the same, seamless regulations and we would all be the better for it.
Somebody forgot to tell California, New York and a few other major markets to come on board.
Now, Rep. Michael G. Oxley, R-Ohio, who heads the House Financial Services Committee, is leading the charge to reform the insurance system. He, like others, is convinced that some form of federal intervention is necessary. Surprisingly, many industry groups have jumped on his bandwagon.
It therefore appears inevitable, given the positions of leading insurance and legislative interests, that some form of federal intervention will take place.
There's an old saying: Be careful what you wish for, because you might get it.
The bottom line is that an agent or broker should not have to jump through hoops to place business from state to state in this country. We fought a war over 140 years ago to unite this nation in purpose and in fact. We are fighting running battles today to unite this country's insurance business.
Is there conceivably a system that would satisfy everybody? Doubtful.
A federal charter would certainly help the biggest brokers, but might let the smaller agents whither on the vine. An outright federal regulatory system would stifle local innovation and potentially ignore problems unique to certain states. Yet a toothless federal "partner" with no authority to enforce its standards could bog down regulatory oversight in an interminable series of court challenges that go on for years.
Agents have to work to assure that a true federal-state partnership, as envisioned by Rep. Oxley, is created. A true federal-state regulatory partnership would give agents the best of both worlds the expertise of state regulators in touch with local conditions, meshed with federal consistency across state lines, while making it easier to do business nationally and internationally.
That would seem to be a perfect marriage, but as we well know, every marriage needs work to survive. And marriage is, technically, a state-regulated affair, with national implicationsat least for now.
The ultimate question is: Who's ready to make a commitment?
Reproduced from National Underwriter Edition, May 10, 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.
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