Hit Or Miss State Regulation Must Go, Says ACE CEO Greenberg

"The state system is an anachronism," Mr. Greenberg said. "We've outgrown it," he added, repeating a view he's expressed on a number of previous occasions.

"It does need to change" since the United States is 40 percent of a world insurance market that has "globalized to a greater degree"–moving toward a global standard of regulation and capital requirements.

"The state system is an impediment to that," Mr. Greenberg said.

Later, he expanded on his view, reacting to a questioner in the audience who suggested that cost issues were the only reason the CEOs had for pushing a federal insurance regulator. The questioner noted that state regulators had done a good job since U.S. insurers are still "solvent and operating" in spite of a worldwide financial crisis.

"I don't accept that," Mr. Greenberg said. "While this was a good test of the state regulatory system" and how well it did in risk management, "this was not a crisis of insurance, of property-casualty-type leveraged exposures."

"This was credit-related, and that impacts p-c companies to a lesser degree," he noted.

"In the end, when I look at regulation around the world right now," he said, the problems go beyond cost. "The quality of regulation from state to state varies dramatically, and when I compare it to the quality of regulation I see in a number of regulators around the world, I just don't think we keep pace with them."

Mr. Greenberg also said state regulation is a trade barrier. If this situation existed in countries around the world where U.S. companies do business–"if they had to go province by province or state by state or canton by canton to be able to enter a country, we'd say that's a dramatic trade barrier."

Thomas Upton, an S&P managing director, who moderated the panel of CEOs, raised the topic of insurance regulation, asking the executives if they thought events in recent months had raised the likelihood of federal insurance regulation, at least in the form of an optional federal charter.

Mr. Fishman predicted the insurance "industry will end up being included in whatever systemic risk regulation is inevitable," but said that was the limit to the degree of federal oversight to which insurers might be subjected.

"I suspect…individual state regulation won't change [because] there is simply not a voice around"–a proponent in Washington willing take this issue on, he said, noting that there are other pressing issues that lawmakers are rightly dealing with.

Citing the inefficiencies inherent in a state-based regulatory system, he said, "We would be in favor of it, but not to the point of beating a drum. We're perfectly comfortable continuing to be regulated the way we are," he said, adding, however, that certain things could be done better, like the "odd process" of licensing of agents that "consumes paper and energy."

Agreeing with Mr. Fishman that a systemic regulator will impact the insurance business, Mr. Iordanou, who said he's been a proponent of an optional federal charter since he "was in diapers," also gave it slim odds. He noted that the last time he thought there was a shot, in the 1980s, "the states were too powerful [and] the agents wanted to stay with state regulation" in spite of a frustrating licensing process.

"I don't think in my tenure in the insurance business that we're going to get an optional federal charter," the Arch Capital CEO said, adding that he was not announcing his retirement.

"I hope one day [we will], because it will enhance our ability as an industry to service our customers properly at a lesser cost," he said. "Unfortunately, we have not made our case to legislators in Washington–not for lack of trying," he said.

Mr. Fishman then told a story of an unnamed "important Washington lawmaker" who once told him that the most common former occupation of "people on the Hill" was working in the state legislature. "Don't think for a minute they're all not thrilled that they're not dealing with auto insurance anymore," reported the lawmaker, suggesting this was a major obstacle.

Mr. Greenberg, who also said he believes an optional federal charter is unlikely right now, said, "The interesting thing in my judgment is the odds have gone up….There's a greater chance of that now than there ever has been."

This is a situation where you have to be careful what you wish for, however, the ACE CEO said. "We're in an environment where regulation is being approached with a punitive undertone. Hardly would we want to be caught up in that," he said.

"If we're presented the real choice, it's going to take skillful navigation."

"The quality of regulation from state to state varies dramatically, and when I compare it to the quality of regulation I see in a number of regulators around the world, I just don't think we keep pace with them."