Analysts Blast State Insurance Regulation

Some insurers may continue to support the current system because “it provides protection,” Zief said. “Management doesn’t need to produce high returns as long as there is an umbrella of state regulation.”

Zief added that, given the competition from other sectors of the financial services industry, “one of my biggest fears is that it [the insurance industry] will slowly find itself becoming less and less relevant.”

There should be a “framework of ethics” but not an “overlay” of regulation when there are other safeguards, such as litigation, Zief said.

She said the current regulatory system is actually unfriendly to consumers, because it increases the cost of premiums.

Another analyst, Michael Weinstein, a senior vice president in the New York office of Putnam Investments, noted that state regulation is a profit center for many states.

At least one attendee in the audience supported the need for state regulation, arguing that consumers would not read insurance forms.

But an analyst, George Cochran, co-founder and managing director of Cochran, Caronia & Company, Chicago, suggested eliminating the guarantee funds would help consumers, by forcing consumers to pay more attention to details such as insurance ratings.

“The consumer would be a lot better off if we got rid of protective measures,” Cochran said. “All they do is let the weak companies survive longer than they should.”

Speakers at the conference also talked about the Coordinated Advertising Rate and Form Review Authority, a pilot NAIC initiative designed to create a single, national system for reviewing new insurance products.

Eighty-eight percent of attendees said that their companies or companies that they represented had not used CARFRA. However, 88% said the program should be expanded.

Vaughan reported that a third draft of an interstate CARFRA compact is almost complete and could be adopted by the NAIC as early as September.