Federal Insurance Regulation On Its Way: Csiszar

"We lost some of the momentum that we had going into the year" with respect to regulatory change. "We might have postponed the day of reckoning, but the day of reckoning is coming."

Supporting his view, he reported that during the PCI annual conference in October, Rep. Michael Oxley, R-Ohio, said that he would still go ahead with the SMART Act later this year or early next year.

Paraphrasing the Congressman's remarks, he said Mr. Oxley had said if the state regulators don't want to comply, "'then there will be an optional federal charter,'" (See NU Online News Service, Oct. 27 for more details.)

Other pressures will move us toward an optional federal charter, he said, pointing to the globalization of insurance and the movement of business into the alternative markets.

"Why buy insurance if you can engage in a hedge strategy" that is not controlled or over-regulated like insurance products?" he asked.

He also noted that PCI member Allstate "has been very upfront" about looking for a federal backstop to help cover natural catastrophe losses.

"If we go running to the federal government every time there's a hiccup in this industry, then why not be regulated by the federal government?" he said.

Meanwhile, he said, states continue to operate through a fragmented, costly regulatory system. Costs, by PCI's estimates amount to anywhere from eight cents to 15 cents from each premium dollar.

"It's burdensome to the point where it's difficult to see how one can breathe fresh air," he said. "The intrusiveness is almost beyond my comprehension," he continued.

Add to that, the fact that the state regulatory system is "much too politicized," and "the reality is that you can't raise rates when an election is coming up," Mr. Csiszar said.

If it's a four-year term, "you had better get your rates up in the first two years," he warned.

He noted that there has been much discussion about interstate compacts that speed product approvals. But that's more important on the life side of the business, he asserted. "The real price for us on the property-casualty side has to become pricing freedom."

To Mr. Csiszar's mind, the state system has become worse. "All of a sudden, we have attorneys general involved," he said. "Who's the regulator here?"

As for his views of federal regulation, he rejects the argument that it creates too much bureaucracy noting that "We've got enough bureaucracy on the state side if you start adding it up."

But there is a "real risk" involved with federal regulation, he said. "Insurance is going to become an entitlement program," he said. "You're going to lose the integrity of the underwriting process," he said, pointing to the flood insurance program.

Another real risk is that a federal regulator would be a one-man show. What if the person in charge was Rep. John D. Dingell, D-Mich., or New York Democratic Attorney General Eliot Spitzer, he said, mentioning two officials whose investigatory activities have discomfited the insurance industry.

In addition, he said, "the sausage-making process in Washington, doesn't always get you the results you would like," pointing to the painful process of getting a Terrorism Risk Insurance Act extension, which he said it now appears will be renewed with high triggers and retentions before federal aid comes into play, including a brand new exposure==a 7.5 percent for nuclear, biological, and chemical risks.

"Before we get too caught up in the notion that an OFC [optional federal charter] is the answer, we ought to think about the consequences," he said.

The insurance conference was sponsored by PricewaterhouseCoopers, Standard & Poor's, Black Diamond Group, Morgan Stanley, and LeBeouf Lamb.