Optional Federal Charters Will Reinvigorate Insurance

The property-casualty industry stands at a critical juncture in the evolution of the global economy. Across the financial services industry, technology is driving a global wave of innovation that presents an ever-expanding menu of choices for consumers. From interest-only mortgages to exchange-traded funds, today's consumers have access to more sophisticated tools than ever before to manage their personal finances.

Yet, in stark contrast, the American p-c industry is saddled with a costly and outdated system of state-by-state regulation that stifles innovation and restricts customer choice. Without regulatory reform, p-c insurance will fall further behind in addressing consumer needs--rather than being recognized for its value as a societal safety net for individuals, their families and the economy as a whole.

As an industry, we are facing a period of unprecedented challenges. From the effects of global climate changes to acts of terrorism, the magnitude and scope of risks is constantly increasing.

Customer needs--which range from individual renters to homeowners with multiple residences, from small-business owners to multinational commercial customers--are diverse and complex. This is not a one-size-fits-all business.

Yet, the current regulatory structure presents barriers to innovation, customization and speed to market--the very traits required to elevate products and services from being commodities to true solutions desired by customers.

Moreover, the current environment has substantial hidden costs, as insurance companies invest more in compliance and paperwork than innovation.

The process for gaining approval for products and services in one state alone can take anywhere from several months to years--consider the difficulty in addressing customer needs that cross multiple states.

That's not to say regulators aren't working very hard, because they are. Unfortunately, their efforts get lost in a system that can't keep pace with evolving customer needs.

All these factors combined mean that insurance customers--both individuals and businesses--receive a disproportionate number of new products and services to address their ever-changing risk needs. The result becomes a wide range of very similar offerings--the equivalent of choosing among several brands of plain, white bread.

The p-c industry can't continue as it is today if it is to be viewed as "valuable" in the eyes of customers. We have an opportunity to drive much needed change to our regulatory system.

U.S. Senators John Sununu, R-N.H., and Tim Johnson, D-S.D., recently introduced the National Insurance Act--legislation that would create an optional federal insurance charter. This would give insurers the choice of selecting a federal regulator while maintaining the current state system for those who believe it best fits their needs.

Like other components of the financial services industry, insurers governed at the federal level would not require oversight of product forms and pricing. Instead, the federal regulator would focus on aspects of the insurance industry that are most important to policyholders--insurer solvency and market conduct.

This uniform regulatory structure would remove unnecessary costs, improve efficiency and customer responsiveness, allow for greater product and service solutions for customers, and also make the United States a much more attractive trading environment for countries wishing to do business here.

What will this mean for the independent agent? With a wider array of products and services and real choices for businesses and consumers, independent agents will play a pivotal role as risk-management consultants. They can focus on which policies carry value-added features, and what are the latest innovations to protect their clients' assets.

With a vastly expanded universe of differentiated products and services, agents will have the opportunity to add value for customers like never before.

Consider what has happened elsewhere in the financial services industry. As investment choices from brokerage firms, banks and mutual funds proliferated over the last 20 years, the role of financial advisors has become ever more important.

For independent agents, regulatory reform of the insurance industry affords a similar opportunity to dramatically increase the value they provide to individual and commercial customers.

How will we ensure that consumers stay protected under this new system of an optional federal charter?

As noted above, the federal charter would address the important issues of solvency and proper conduct by insurance firms. When it comes to pricing and policy forms, independent agents would step up in their roles as advisors to their clients.

Agents would select from products and services available in the marketplace that offer the best value and that are responsive to their client's needs. Market forces would ensure there would be a wide variety of choices and that pricing would be competitive.

An optional federal regulatory system would also provide insurers with certainty regarding the interpretation and application of laws and regulations.

Uniformity in these areas will permit insurers to redirect some of the resources currently spent on multiple, overlapping and sometimes conflicting regulatory compliance functions to the development of new products and services to keep pace with ever-changing risks faced by insurance consumers.

These changes would make the insurance marketplace operate like other arms of the financial services sector, where consumers benefit from a national marketplace and the efficiencies that result from it.

We all would benefit from a vibrant insurance marketplace where innovation flourishes and where businesses and consumers have wide access to the best possible products and services to meet their ever-changing needs.

Make no mistake--creating an optional federal charter will not be easy. It will pose many challenges and require substantial effort on behalf of legislators and industry leaders.

But these are challenges we must embrace if the insurance industry is to appropriately respond to ever-changing customer needs and ultimately be recognized by customers for the true value our industry provides.