WASHINGTON–An optional federal charter could cut regulatory costs for life insurers by as much as $5.7 billion, according to a new study, but an agents' group suggested its numbers were "fuzzy."
The study conducted for the American Council of Life Insurers by Dr. Steven Pottier of the Terry College of Business at the University of Georgia in Athens, also said the charter legislation now before Congress would significantly increase the efficiency of insurance regulation for insurers operating on a nationwide basis.
Sponsors of the measure that has been introduced are Sen. John Sununu, R-N.H., and Tim Johnson, D-S.D.
Dr. Pottier's study found that $5.7 billion in savings would be the result of eliminating "largely regulatory compliance costs" that are duplicated by each of the various jurisdictions nationwide.
Such costs would include licensing and other fees required to be paid by insurers, such as those to cover market conduct examinations, but does not include state premiums taxes, which would continue to be collected under the Johnson-Sununu bill.
Dr. Pottier said that $5.7 billion was actually a "conservative" estimate, and that the study did not include the additional potential benefits that a federal charter could provide, such as increased competition or an enhanced ability for insurers to bring new innovations to market swiftly.
"An optional federal charter system would allow life insurers to conduct business either under the existing state regulatory system or a new federal system, depending on which better suits their customer base," said Frank Keating, president and chief executive officer of the ACLI. "The result would be a more efficient regulatory structure that imposes fewer costs on insurers–costs that are often passed on to the customer."
But Charles Symington, senior vice president for government affairs and federal relations for the Independent Insurance Agents and Brokers of America, which opposes the federal charter concept, raised doubts about the latest ACLI study findings.
He noted that another study conducted for ACLI by California-based Computer Sciences Corp. in 2005 showed a very different number in terms of the potential savings.
"According to another ACLI-sponsored study two years ago, the annual savings in creating an OFC for the life industry was $600 million," he said. "And now it is nearly $6 billion, ten times the prior estimate? Which is it? Sounds like fuzzy math to me."
In either event, Mr. Symington noted, "there is nothing to ensure that these alleged cost savings will be passed on to consumers."
Mr. Symington said the IIABA feels that a federal charter would weaken protections for consumers. "Consumers seem to agree, as there is no consumer cry for a new federal bureaucracy in Washington, D.C.," he added. "That call is only coming from some in the insurance industry."
In discussing the study, Mr. Keating sought to diffuse the notion that a federal regulator would be less responsive to consumer concerns, noting that a dual charter system has worked well for the banking industry's regulatory structure, on which the Johnson-Sununu bill is based.
"It has not resulted in a dive to the bottom" by regulators seeking to draw more companies under their jurisdiction, he said, adding that instead, "it has resulted in healthy competition."
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