U.S. Insurance Regs Archaic, Execs Charge

NEW YORK--Insurance company executives, charging that the current system of state insurance regulation is "archaic" and "broken," touched off a debate with regulators at a gathering here.

At the Property-Casualty Joint Industry Forum Wednesday, Thomas Wilson, chief executive officer of Northbrook, Ill.-based Allstate, during a panel addressed a question regarding the lack of product innovation by saying that personal lines insurers are thwarted, in part, by a "regulatory environment that is so arcane you can't get anything done."

The statement prompted South Carolina Commissioner Scott Richardson to step up to an audience microphone and challenge the CEO to tell him exactly what regulators could do to cease being archaic.

Mr. Richardson also demanded to know why "800-pound gorillas" like Allstate are pushing for federal government solutions to catastrophe insurance problems. The South Carolina commissioner, participating on a prior panel consisting of regulators, had warned against letting the feds into the insurance business.

"Because we're the ones on the hook," Mr. Wilson said, choosing to respond to the second part of the regulator's two-part question.

"But you did that voluntarily," Mr. Richardson shot back.

"Yes sir, we absolutely did. But we recognize that the risk is too great for the return we're getting," Mr. Wilson said, going on to describe how Allstate cut its exposure in Florida to about one-third of its prior size in recent years.

Addressing the first question, he said, "I do think the state-based system is up for review and should be improved."

"Time and again, I see regulators deciding that they know best and that they need to be out there" controlling prices and designing coverage forms, said Mr. Wilson, whose view was later echoed by Gerald Schmidt, CEO of Mutual of Enumclaw in Enumclaw, Wash.

Mr. Schmidt referred to "onerous pricing oversight" that results in an "absence of freedom in a free market economy."

Mr. Wilson urged regulators to loosen the reins and "to believe in the customer."

"It's worked in every other industry. If you let consumers choose, they will get themselves educated. They will understand what to do," he said.

Mr. Richardson, described by panel moderator Frank Nutter, president of the Reinsurance Association of America, as "probably the most free-market commissioner we have in the country," responded that such an approach is not possible in coastal states where two or three insurers have 40-50 percent of the business.

"You're saying let the customer walk. If Allstate wants to get 100 percent rate increase, I should give it to you and Johnny Lunchbucket will go to somebody else.... That sounds good in theory, but I'm not sure there's enough capacity in this room that would come sucking in there and take the business [you] leave," Mr. Richardson said. It's "a tough dance" for regulators, he added.

Mr. Wilson insisted that the two issues--fixing catastrophe insurance problems and reforming regulation--are separate.

Allstate's catastrophe proposal--a system that would layer state and federal backstops on top of private insurance--recognizes that "the political, economic and social prospects for getting totally free-market pricing in homeowners is not possible," Mr. Wilson said.

He repeated his call for regulators to trust insurers and customers in areas where the free market can work.

Evan Greenberg, CEO of ACE Ltd., advocated a single, countrywide set of uniform regulation. "Just look at the number of NAIC model acts that have been passed where they're to be adopted by all the states...How many of them have in fact been done?" he asked.

"It's a broken system and it's antiquated," Mr. Greenberg said, noting that unanimous adoption of model acts is nearly nonexistent.

If you went to any foreign country and had this kind of a regulatory environment, "we'd call it a trade issue," he said.

It's not enough to "tinker with the edges" of the current regulatory system to fix it. "We're one country. There should be one uniform set of regulations," he said.