The Edge of the Regulatory Thicket

The American Insurance Association’s support of a draft proposal for an optional federal charter for p/c insurance companies has once more taken the industry to the edge of the regulatory thicket.

The AIA position, which again fuels the debate over federal vs. state regulation, comes at a time when the industry is being buffeted by powerful winds of change. Internal pressures from mergers and acquisitions, carrier insolvencies, increasing globalization of financial services, international competition, the Internet and the impact of Gramm-Leach-Bliley are all influencing the industry in ways not yet clear.

What is clear is that if the p/c industry wants to stay at the front of the financial services pack, it will have to take a firm hand in modernizing the regulatory systems by which it operates. Whether that means retooling the present state-based system or shifting to some sort of federal system still needs to be studied. And that is mandatory.

The ABA Insurance Association would like to see a system that includes a federal charter for insurers, much like that which exists for the banking industry. This may not be such a bad thing given the new environment—digital and global—in which insurers must now compete.

The ABAIA plan would establish an Office of the National Insurance Commissioner in the Treasury Department to charter and regulate federal insurance companies. The agency would be headed by an executive with the same status as the Comptroller of the Currency. As is currently the case, the agency would grant separate charters to life and health insurers and to p/c companies, but a parent company could own both. Insolvency protection would be by a federal guaranty corporation.

Further, The National Association of Insurance Commissioners is on record, as might be expected, supporting its continuing plan to bring uniformity, uniform application, efficiency and effectiveness to state insurance regulation, a process it began in March 2000 following unanimous NAIC adoption of the Statement of Intent.

NAIC President and Kansas Insurance Commissioner Kathleen Sebelius said in a statement released late last month, “Despite the AIA’s actions, our focus will not change nor will we yield our mission of safeguarding consumers across the country, knowing that they are and will continue to be well-served by the states. Our goal is creating a 21st century regulatory system that not only makes it easier for companies to get products to market and gives consumers more choices, but also enhances the protection of the very policyholders we are charged with looking out for.”

Other trade associations are on record opposing the AIA stand, as is the National Conference of Insurance Legislators which says it supports voluntary efforts “to speed and synergize’ state approval processes.

Open debate of this thorny issue is due and should be encouraged. But it would seem the key for successful resolution is to stay clearly focused on the bottom line, “protection of the policyholders,” as Sebelius says, and forego the politics and the turf battgles which are already taking shape.

Topics Legislation Property Casualty