The Sound of Feds Listening

For months now, Director Michael McRaith and his staff at the Federal Insurance Office (FIO) have been doing something rare for a federal agency — they’ve been listening.

In meetings, requests for comment, and even a symposium at the Department of the Treasury’s historic Cash Room, different groups representing different views of the insurance industry — companies, trade associations, consumer advocates, and regulators — have had the opportunity to tell McRaith what they think about how our industry is regulated and what could be done to improve and modernize the system.

After months of listening, we’ll find out what the FIO heard, and more importantly, what they think. Under the Dodd-Frank Act, which created the office, the FIO is required to report to Congress this month on the broad issue of how to modernize and improve the system of regulation for insurance.

No Small Stake

Obviously, the National Association of Mutual Insurance Cos. (NAMIC) members have no small stake in the matter. Of the thousands of companies providing property/casualty insurance coverage in this country, we represent more than 1,400 of them, from the very smallest to the largest.

At NAMIC, we believe any discussion of insurance regulatory modernization should start with the recognition that, even in the chaos of the financial crisis of 2008, the current state-based insurance regulatory system proved resilient and effective in both ensuring company solvency and protecting consumers. In fact, many experts would agree that the states outperformed their federal counterparts. As other financial services companies were failing and seeking government assistance, property/casualty insurers continued to be well-capitalized and neither sought, nor required, federal funding and were able to continue to protect their policyholders.

This shouldn’t be surprising. The hallmarks of the state-based system of insurance regulation are solvency oversight and consumer protection. State regulators actively resolve consumer complaints each year, while also supervising all aspects of the business of insurance by establishing and enforcing strict solvency and investment standards and limiting unrelated activities of insurance affiliates. Moreover, in the rare event of an insolvency, the state guaranty system provides an additional layer of protection for consumers.

The states have also done much to foster competition. There are currently thousands of insurance companies of all sizes and varieties offering financial protection to Americans in a multitude of different markets.

This isn’t to say that the state-based insurance regulatory system is perfect. Far from it. Most states employ some form of rate regulation as a central feature of their systems. It is the last vestige of price regulation found in financial services, and in many cases it distorts markets and harms consumers. Director McRaith comes from Illinois, the only state with no rate regulation. He has seen this system work, so we are hopeful the Treasury study will recognize the need for change in other states.

Not all states are the same, and like many others, we are concerned with the lack of efficiency and uniformity in the states, and we believe that much can be done to modernize and streamline insurance regulation. As much as state regulators focus on ensuring consumer protections, burdensome and duplicative regulations needlessly add to the costs facing those same consumers.

Which brings us back to the FIO study … and listening.

As it crafts recommendations for modernizing insurance regulation in the U.S., we at NAMIC believe it is essential for the FIO to consider what is the best structure for all constituents, including consumers, taxpayers, insurance companies, agents, and others affected by the insurance underwriting process. NAMIC is committed to identifying areas for improvement and coordination to strengthen the insurance regulatory system, increase competition, and protect the nation’s policyholders. It is our goal to help the FIO recommend actions that will promote as much efficiency in the state system as possible without jeopardizing its effectiveness.

Topics Legislation