Some Regulators See Fed Role On The Horizon

"I think more and more [insurance] commissioners understand there is need for change," Louisiana Insurance Commissioner J. Robert Wooley said during the annual meeting of the King of Prussia, Pa.-based American Association of Managing General Agents. "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."

Florida Insurance Director Kevin McCarty, agreeing there is a need for regulatory efficiency among the states, in part blamed the National Association of Insurance Commissioners for the slow progress, at one point commenting that the initials "NAIC" have come to be known as "No Action Immediately Contemplated."

"There is still the need to break down barriers," he said. "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."

Louisiana Deputy Insurance Commissioner Paula Davis said her state is one place where barriers are coming down as it moves toward more deregulation. "We want to be on the front end of reform and are working closely with legislators and agents to improve the system," she said.

Charles Cohen, former insurance commissioner of Arizona, now in private law practice, said he had always taken a pragmatic view and believed some form of federal oversight was inevitable. He said the NAIC is too polarized to do the job. "The system we have now is anachronistic. The world is changing and the system is not. The system is getting worse and worse as time goes on," he said.

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

However, he recognizes that the process is cumbersome and believes the best way to accomplish the changes needed would be to split regulation 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 that ultimately this would have to come from Congress.

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

Andrew Frazier, president of Western World Insurance Company and moderator of the panel, observed an overall pessimism on the part of the regulators on whether these issues could be resolved without federal intervention, which no one on the panel disputed.

Mr. McCarty blamed the big states, such as California, New York and Texas, for their failure to act more in harmony with other states and for thwarting any attempts by the NAIC to iron out kinks in the system. Mr. Wooley agreed, saying regulation is ultimately a battle between big and small states, adding this was why federal regulation is needed.

However, Mr. Cohen said, whatever the resulting system, it should not destroy state oversight. "To throw that away would put us back in the stone age," he said, adding such a development would be "incredibly disruptive" because there is no expertise in Washington to regulate insurance.

Ms. Davis noted that one benchmark gauging the success of any federal oversight system would be how quickly it resolves consumer complaints, which in Louisiana take no more than 90 days.

If there were federal regulation, the regulators noted, there would also be questions about collection of taxes. "The tax issue that is at the heart of the state-federal tension," said Mr. Cohen.

Mr. Wooley noted, for example, that in Louisiana there is $180 million from surplus lines taxes at stake, "which is a big hole that would have to be replaced" if Washington took over taxation.

Reproduced from National Underwriter Edition, May 28, 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.