NU Online News Service, Dec. 21, 2:48 p.m. EST

Comments provided to the Federal Insurance Office on how insurance should be regulated in the future ranged from strong support of the current state-regulatory system to calls for the federal government to play a lead role "if uniformity and consistency of regulation is to be achieved."

In a lengthy response submitted Monday, the National Association of Insurance Commissioners cited how comprehensive and detailed the current system of state regulation is.

The NAIC points to the states' comprehensive oversight of solvency, market conduct and other processes and programs, and notes that solvency regulation is different state-by-state because it deals with the different needs of insurers and agents in each state.

Support for state-based regulation also came from Jimi Grande, senior vice president of federal affairs for the National Association of Mutual Insurance Companies. He says, "Property and casualty insurance proved to be among the best regulated financial-services sectors throughout the financial crisis."

He says policyholders of NAMIC member companies "were well served and well protected.

"We will continue to support efforts that lead to more uniformity and streamlined processes, however we will fight any new federal efforts that will lead to more duplicative or costly regulations."

The National Association of Professional Insurance Agents says in its comment letter that it fears any study undertaken by the Treasury Department will inherently support stronger federal oversight, which it opposes.

PIA says it is "strongly opposed to expanded federal regulation of insurance and is in equal measure strongly supportive of a modernized, national state-based system of insurance regulation."

At the same time, PIA says its members "can be supportive of the FIO" as long as it adheres to the mandate set for it by Congress that specifies it is not a regulator of the business of insurance.

Robert Pierce, CEO of the Michigan Association of Independent Agents, says it would be "impossible for a new federal agency to replace the knowledge, effectiveness, and responsiveness" that state regulators provide to Michigan consumers.

He also says that an optional system of federal oversight would only increase confusion amongst consumers, create unnecessary costs and increase federal bureaucracy at a time when Michigan residents have sent a clear message that they desire less federal and state bureaucracy."

But comment letters also showed support for a greater federal role in insurance regulation.

Late last week, the Risk and Insurance Management Society outlined what it sees as the shortfalls in state regulation and called for more federal oversight.

Adding to those comments, the Financial Services Roundtable says in its letter that the federal government must play a "lead role" insurance regulation from now on.

Richard Whiting, FSR general counsel, also says that a majority of FSR members "believe that the FIO must be a lead voice, not only in vetting options, but ensuring that a new era of insurance regulation does not come with duplicative or layered regulatory requirements."

Whiting says, "Clearly, the current system does not promote optimal efficiency."

He adds that the current system "also raises questions of fairness for consumers when the weight of regulation stifles product innovation, limits customer choices, increases costs and inhibits the development and function of competitive markets."

The American Insurance Association says in its letter that government rate and form regulations—which are unique to property-casualty insurance among competitive U.S. industries—"undermine effectiveness of the state-based regulation. "

The letter cites some instances where "heavy-handed government price controls, coupled with policies that steer consumers to government-run insurers, actually discourage private markets and undercut financial solvency, leaving consumers with fewer options and more exposure."

Stephen Zielezienski, AIA senior vice president and general counsel, recommends that the FIO study the effects of the U.S. rate and policy form regulation of P&C insurers and the extent to which such regulation undermines competition in private markets, decreases consumer choice and detracts from the goals of financial-solvency oversight.

The comments were submitted to the FIO to provide input for a study on current insurance regulation and how it should be modernized going forward.

Special Reports /

FIO Hears Industry Arguments For and Against State-Based Regulation

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