An outdated and inefficient state regulatory system unnecessarily raises U.S. insurance costs while discouraging capacity growth among both domestic and foreign carriers, an industry leader told global insurance executives gathered here.
"Our 50-state regulatory structure is costly, highly inefficient and frankly is an anachronism as well as a trade barrier," keeping new capacity out of the U.S. market, charged Evan Greenberg, president and chief executive officer of Bermuda-based ACE, Ltd.
Mr. Greenberg, who spoke on a panel here during the International Insurance Society's annual seminar, was one of several industry speakers who ripped the state regulatory system's shortcomings, drawing a spirited rebuttal from one top commissioner in attendance.
In Mr. Greenberg's view, "considering the time and cost it takes to get something done, the industry has outgrown the U.S. regulatory system."
He said the system's inefficiencies and the snail's pace of reform has convinced his company to strongly support optional federal charter legislation being debated in Congress. "Next to terrorism coverage, it's the most important priority on the industry's legislative agenda today," he said.
Mr. Greenberg also contended that the fragmented U.S. oversight system has weakened this country's influence in negotiations to lower global insurance trade barriers and achieve regulatory harmonization.
Calling for more reciprocity–not only among U.S. states but individual countries–Mr. Greenberg said that "if a jurisdiction meets minimal regulatory standards for solvency and governance, their regulatory decisions should be accepted everywhere."
"That doesn't mean the local regulator doesn't have a role," he added, citing market conduct as one appropriate duty for state insurance commissioners.
Mr. Greenberg also said that more demanding rating agencies and independent auditors have "become de facto national regulators today"–in some ways supplanting rather than supplementing the work of insurance commissioners because their decisions have national and even international ramifications.
Another panelist–Edmund Kelly, chairman, president and CEO of Boston-based Liberty Mutual Group–added that while his company has "traditionally been a supporter of state regulation, the lack of regulatory leadership at the national level on crucial national issues such as terrorism coverage and free trade in services" puts the industry at a disadvantage, both in Washington and in the global economy.
Indeed, Mr. Kelly suggested that tunnel vision and myopia are prevalent in too many states–especially those where regulators must earn votes to get and keep their jobs.
"Their focus by nature is local," he said. "They do what they have to do to get re-elected, and they don't pay all that much attention to national or even global issues."
Indeed, he agreed with Mr. Greenberg that U.S. insurance regulation is a barrier that undermines negotiations over international trade rules.
"Our trade negotiators have to talk out of both sides of their mouths on insurance," he said. "We're pressing other countries such as China to allow our insurers to write in every one of their cities, under one set of rules, but we don't allow any foreign carriers–or even our domestic insurers–to do that here in our own country."
Later on, in a separate IIS panel on regulation, moderator Ernie Csiszar, president and CEO of the Property Casualty Insurers Association of America–as well as a former president of the National Association of Insurance Commissioners–raised that contradiction directly with the current NAIC president, Maine Superintendent Alessandro Iuppa.
"Should China, with some 40 provinces, have a regulator for each one, like we have here in the U.S.?" he asked. Mr. Iuppa declined to answer directly, responding with a laugh that he did not think it appropriate "to interfere in the internal affairs of China."
In the second IIS panel on regulation, Mr. Iuppa said U.S. regulators have "actively engaged" their global counterparts to reconcile conflicting regulatory demands, noting that he chairs the executive committee of the International Association of Insurance Supervisors.
"I shudder to think about what our differences would be like if we didn't meet as often as we do and have an ongoing dialogue to harmonize regulations," he said.
However, another member of the regulatory panel, Alabama Insurance Commissioner Walter Bell–in line to become the NAIC's next president–had little patience for attacks on the effectiveness of the U.S. oversight system, or for suggestions that states should bow to industry and global pressure by surrendering their regulatory prerogatives.
"Many states beyond the obvious ones, such as California and New York, are bigger jurisdictions than many of the countries we're dealing with," he said.
"I came up from this industry," added Mr. Bell, a former vice president of diversity marketing at MONY Group, a New York-based life insurer. "While we need a harmonized system, no regulation I know of has stopped anyone from coming in and doing business in the U.S." He also noted that "I get 30,000 consumer complaint calls a year, and I don't recall any of them complaining about overregulation."
However, Mr. Bell did concede "there are federal tools we could use without preempting local regulation," perhaps referring to the proposed State Modernization and Regulatory Transparency Act, better known as SMART, which would set federal standards for state insurance regulators to follow.
Mr. Csiszar, at a press conference between the two panels, said that while there are "pros and cons" in adopting an optional federal charter program, such a radical move might be necessary.
"Having been a state regulator, I have a natural fear of federal bureaucracy. In my heart of hearts, I want the state system to reform itself," he said.
However, he added, "there is a siren song for an optional federal charter, and given we have a state system that could possibly work but is not working and shows no sign of being able to reform itself, I can't blame those who are tempted to follow that siren song."
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