WASHINGTON–State insurance regulation prevents U.S. insurers from being globally competitive, a reinsurance industry official and former Federal Reserve Board governor told a recent industry meeting.
The comments came from Roger Ferguson, chairman, head of financial services for Swiss Re America and former vice chairman of Federal Reserve Board.
He spoke at a seminar on, "Will an optional federal charter for insurers increase international insurance competition?" held by the American Enterprise Institute, Dec. 20.
Mr. Ferguson said even if obstacles from state regulation could be removed, issues such as enforceability and constitutional restraints remain because states lack the authority to negotiate foreign treaties.
Alessandro Iuppa, the chief government affairs officer for Zurich North America, said, "For global activity, it is imperative that regulators also have a global perspective."
Mr. Iuppa, a former state regulator who also served as chief U.S. representative for an international insurance regulatory body, also acknowledged the difficulty of state insurance regulators to represent U.S. insurance on international issues.
"While U.S. regulators, myself included, for many years have been engaged in international matters, it has been and will continue to be difficult if not impossible for state regulators to execute upon agreements that may be reached in [international] meetings."
Mr. Iuppa and Mr. Ferguson both said some form of optional federal charter was important for improving the international competitiveness of U.S. insurers.
But Thomas Hampton, commissioner of the D.C. Department of Insurance, Securities and Banking, defended state regulation at the seminar.
"Insurance is a unique financial product that focuses on the transfer of pure risk to protect consumers' property, health, income, businesses and lives," Mr. Hampton said.
"The state-based regulatory system for insurance has proven itself adept at meeting its primary goals of consumer protection and marketplace strength," he added.
Regarding the U.S. role in international insurance regulation, Mr. Hampton said the National Association of Insurance Commissioners has an "active role" in international associations of insurance supervisors.
But Mr. Ferguson pointed out that reinsurance, as a global business, provides financial support for global business, and because it deals in business-to-business relationship, is not involved in the strong suite of state regulation, consumer protection.
Because of that, he added, reinsurance "is the most logical portion of the insurance market poised for reform."
Mr. Hampton acknowledged that and noted that regulation of reinsurance "should be different" than it is for insurance, and the NAIC has developed a reinsurance regulatory modernization proposal to deal with that.
In his comments, Mr. Iuppa said the OFC is unlikely to impact most insurers. He said that of the 6,500 U.S. insurance companies licensed in 2004, most operate in three or fewer states. "A rather small number of companies would opt for federal regulation," he said.
But, he quickly added, "for companies as well as brokers who operate globally and across the country, the existing state regulatory framework can present barriers to market entry, product innovation and introduction, as well as barriers to meeting our clients' insurance needs, both national and globally."
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