A funny thing happened in Washington recently at the Independent Insurance Agents and Brokers of America Legislative Conference and Convention. While all industry associations are passionately staking out their positions on regulation of the business, IIABA appeared to take a different tact.
Not abandoning its opposition to the liquidation of state-based insurance oversight, association leadership appeared to be bracing membership for the coming new reality–federal regulation. The question is, how much and how far will federal regulation go?
In that sense, IIABA leadership pretty much said: Folks, Uncle Sam is going to oversee our business. We can't control that, but we can have a voice in shaping how extensive that regulation will be.
IIABA Chair Brett Nilsson told his members during a panel discussion that he did not see a state oversight system broken beyond repair. Later that day, however, during his solo address reflecting on the state of independent agents, he conceded that at the very least Washington will seek to establish a systemic federal regulator–with some insurance oversight authority–to make sure "another AIG doesn't happen again."
He was adamant that wherever this line of argument goes, it is important the Big I membership as a whole remains involved in the discussion and "makes a difference" in where ultimate reform legislation leads.
I admire what IIABA appears to have done, shifting gears without changing position. The Big I is effectively saying that while state-based insurance regulation is still adequate, Washington probably won't be able to withstand the pressure for reform, so let's minimize the impact.
The insurance industry is split into two camps on this issue–those who support the current state-by-state system of regulation, and those anxious to see some federal regulatory oversight.
Congressional leaders vowed to get the Obama administration a bill to strengthen regulation of the financial sector this year. Treasury Secretary Timothy Geithner was quoted as saying that the idea of an optional federal charter had some merit.
All in all, there appears little doubt that change is coming. Unlike in the past when this subject has come up, odds are this time a reform bill won't die in a committee's backroom. The stakes have gotten too high not to fix the financial oversight system, and even though insurance was not the culprit in our recent financial demise–not even within AIG–insurance cannot avoid the tidal wave being generated toward reform.
One begins to realize a major sea change is occurring when a consortium of health care insurers, providers and practitioners tell President Obama they will slow the growth of medical and insurance costs while helping the administration secure a plan for universal coverage.
If the White House can convince this group how important it is to get the federal government more involved in insurance, how can anyone believe the rest of the industry is not in Washington's crosshairs?
The average insurance buyer does not differentiate between health and property-casualty insurers. It is one big business to them, and insurers better not think they will garner much sympathy from the heartland to keep things as they are, especially given public negativity toward the industry.
If nothing else, the insurance community should heed the IIABA's message that while everyone has an opinion, it is more important to be part of the dialogue on reform and influence the debate.
So, in the end, what shape will federal regulation take? Will state insurance commissioners become extinct, or will they be partners with federal regulators?
On the plus side for states, it is doubtful Uncle Sam would want to deal with the personal lines availability and affordability crises and the complaints state insurance departments handle on a daily basis.
During the IIABA's panel discussion with chief executive officers, Mike McGavick of XL Capital said he did not believe the federal government would want to get into the personal lines side of the business but would want to regulate the commercial side.
That said, the major push in commercial lines appears to be toward an optional federal charter. That idea has one major flaw–it is voluntary. If this economic crisis has taught us anything, it is that when business is left to choose a regulator, it chooses the weakest.
That choice doesn't help our economic system and would seem to be counterproductive to promoting efficiency. The p-c insurance industry is crying out for efficiency–in licensing, reporting, rate oversight and contract certainty.
Efficiency is not obtainable when there are 50 sets of standards for insurers and agents, and it won't be any more efficient if the players get to choose their referee.
Associate Editor Mark E. Ruquet welcomes comments on his column on NU's Web page at www.property-casualty.com, or you may reach him directly at mruquet@nuco.com.
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