The Great Debate: Round One

–The insurance industry is thriving–therefore no radical change in the oversight system is in order.

–Although state regulation certainly requires improvement, and must continue to evolve to meet market needs, anyone who thinks the federal government would do a better job of assuring company solvency and protecting consumers hasn't been paying attention to Washington's failures in the subprime mortgage crisis. Ms. Praeger said the federal government was "asleep at the switch" during the housing market's collapse.

–State regulators do a far better job than Washington ever would in responding to consumer complaints. "When consumers call 911 for help, they want it to be a local call, not one to D.C.," she said.

–The National Association of Insurance Commissioners has already established strong relationships and excellent rapport with their counterparts around the world, and have taken leadership positions and made tremendous progress on global regulatory issues.

–The NAIC is dead set against an optional federal charter. Establishing a dual regulatory system would end up creating a race to the bottom," Ms. Praeger warned, in which "we could end up with regulatory arbitrage, with carriers opting for the less vigorous federal alternative–to the ultimate detriment of consumers.

–An alternative bill creating a federal Office of Insurance Information is preferable to launching an OFC, with Ms. Praeger contrasting the two as "cooperation versus subjugation."

–The NAIC is not nearly as enthusiastic about a bill establishing uniformity in surplus lines and reinsurance regulation, outside of its provisions for premium tax collection. "Any federal standards should be a floor, not a ceiling," said Ms. Praeger. "States should be able to adopt stiffer regulations than the federal benchmarks."

–The NAIC might be willing to go along with a bill to establish a National Association of Registered Agents and Brokers, to streamline licensing for producers doing business in multiple states, Ms. Praeger noted, "as long as the body created is controlled by state regulators."

–Bottom line, according to Ms. Praeger, our house is in orderState regulation is working, and consumers are being protected. We have a robust [insurance] marketplace.

As you can imagine, American Insurance Association President Marc Racicot begged to differ. His positions can be summed up as follows:

–The inefficient, unwieldy state regulatory system is actually inhibiting industry growth and raising the cost of coverage for consumers, as unnecessary compliance expenses are passed along to buyers. It is virtually impossible to drive new products to market in a reasonable period of time and at a reasonable expense, he said.

–Mr. Racicot said the premise of the argument that the subprime crisis shows Uncle Sam can't be trusted to regulate insurance is bogus. He noted that federal regulatory agencies lacked the legal authority to supervise those elements that got the subprime mortgage market into trouble, adding that such a mistake would not be repeated in creating a new national insurance oversight system under an optional federal charter.

–The lack of uniformity in domestic regulation puts U.S. insurers at a competitive disadvantage in this planetary economy, while driving more capital into offshore jurisdictions.

–No matter how well-intentioned and hard-working state regulators may be, they cannot speak for the United States in terms of international trade under the U.S. Constitution. Fifty-six U.S. regulators are not authorized, let alone capable, of presenting a cohesive system to the global insurance market, he argued.

–He emphasized the optional part of the optional federal charter proposal, noting that anyone who wished to remain state-regulated could do so–just like in the banking business, a dual regulatory system that has worked well for decades, he noted.

–AIA supports the proposed creation of a federal Office of Insurance Information to better coordinate U.S. policy on global insurance issues, but sees it as clearly inferior to an OFC.

–AIA sees some merit in the proposed non-admitted/reinsurance regulatory standards bill, but Mr. Racicot argued that "setting benchmarks is just as intrusive as an OFC, while leaving it up to 56 insurance departments to interpret how to implement them"–a recipe for trouble, if not disaster down the road, he suggested.

–AIA is less than enthusiastic about NARAB, he added, noting that it "addresses only a narrow slice" of the regulatory problems facing the industry, while expressing concern about "how it will be structured and interact with the states."

–Bottom line, Mr. Racicot concluded, while halfway measures represent "a good faith effort to improve the system, we are capable of much more," with the ultimate solution being an OFC.

What do you folks think???

(Please note that Ms. Praeger and Mr. Racicot will face off again on Sept. 25this time nationwide over the Webas part of National Underwriters second annual virtual conference, Facing The Future of Insurance. I'll pass long more details shortly.)