Commissioners Debate OFC Concepts At Law Confab

NEW YORK–Lawyers at an insurance seminar for attorneys here had a simple question for state insurance regulators: “Is state regulation working?” They answered that it was and questioned the need for any federal involvement.

Joel Ario, Pennsylvania's acting insurance commissioner, led off the regulators panel during the 18th Annual Current Issues in Insurance Regulation seminar sponsored by the New York City Bar Association.

Mr. Ario started his comments by noting that in health insurance, there are already many state-federal partnerships. The health insurance industry is a “broken marketplace” where the lack of affordable health insurance has created a crisis that can be remedied if states are used as laboratories for change, he said.

In order to do this, he added, “Congress needs to get out of our way a little bit.” For instance, he said Employee Retirement Income Security Act [ERISA] restrictions need to be loosened so that states have more leeway to try new programs.

As an example, he said the power for states to assess or offer credits to employers depending on whether they offer health coverage may or may not lie within the 1974 ERISA legislation. “To me it is absurd that Congress has the power to give to states and leaves it to the courts to decide.

“Access is not only a moral question in the richest country in the world that ought to be able to cover everyone, but cost is also one of the emerging issues.”

Mr. Ario explained that he “never thought [insurance regulation] had to be one or the other”–namely, a choice between state and federal regulation.

He said life insurers can make the strongest case for federal regulation. But, he continued, the “worst case” is to have the choice between state and federal regulation because it would result in an “arbitrage” between the two systems of regulation.

The property-casualty industry is different because products are more tailored to individual regions, Mr. Ario added.

On the issue of health care, Steven Goldman, commissioner of the New Jersey Department of Banking and Insurance, noted that “the problem is the absolutely unsustainable cost of health care. At the current rate it is growing, it would just eat up our economy.”

Costs need to be contained using science and technology, he said. “These are parts of the system that are man made,” Mr. Goldman added. The failure to use technology to cut the cost of health care is among “the things that we are doing to ourselves,” he noted.

Eric Dinallo, New York superintendent, gave his reaction to the recommendations in the U.S. Treasury blueprint proposal released last week, which called for a federal insurance regulator and an optional insurance charter framework for life and p-c sectors alongside the state-regulated systems.

Mr. Dinallo said “it almost shocked me, and that is from someone who has had a lot of shocks in the last few weeks.”

“If the federal government wants to wade into car and homeowner insurance, go right ahead,” he cautioned. He noted the potential for companies to play a federal system off of a state-based system.

But, he added, state regulation has a “history of consumer-driven oversight.”

“I'm not strongly opposed to federal involvement” in areas such as reinsurance, but “I am skeptical of the optional part,” he said. Mr. Dinallo pointed out that the insurance industry has not experienced the turmoil that other financial services sectors have seen. However, he did add that “we have to do better with the mechanics” by continuing to work on projects such as the Interstate Insurance Products Regulation Commission.

When asked whether efforts were being made to eliminate the “49-1″ principle in which New York's regulations were often very different from other states, Mr. Dinallo said he does not mind standing out if New York regulations make the state “a leader and bring quality [to regulation.]“

However, he noted that in many cases, people did not even know why certain laws were put in place.

The possibility of an optional federal charter addressed in the Treasury Report raises a lot of questions, according to Francine Semaya, a chair of the insurance, corporate and regulatory practice group with the law firm of Cozen O'Connor in New York and a conference organizer.

An OFC would be conceivable with life insurance and reinsurance businesses, she said. However, property-casualty insurance is more regional, she noted.

The change in structure could affect current processes such as holding company registration statements and tax allocation agreements, she added. Consequently, any change in the current regulatory structure would need to have such details worked out, Ms. Semaya continued.