Optional Federal Chartering Opponents Duel At Congressional Hearing
The first hearing on optional federal chartering revealed the stark differences between the life insurance and property-casualty insurance industries that are certain to make enactment of OFC legislation that much harder than if the industries were unified.
While the American Council of Life Insurers, Washington, supports OFC, as do some in the p-c industry, other powerful forces among p-c insurers strongly oppose it.
The widespread view is that some type of consensus will have to be achieved before any OFC legislation can move ahead. Based on the testimony at a Financial Services Subcommittee hearing, that will be a daunting task.
The case for OFC was made forcefully by Steve Bartlett, chief executive officer of the Financial Services Roundtable, Washington.
He says that OFC is a top legislative priorty for his group, which represents 100 of the nations largest integrated financial services firms.
The costs of the present system are reflected by industry profitability, Bartlett says.
“It is profitability, after all, that allows our companies to offer products and services at the lowest possible cost to consumers,” he says.
The rate of return for life insurance companies, Bartlett notes, was 10% in 2000. By contrast, commercial banks experienced a 16.7% ROR, while that for diversified financial firms was 21.3%.
The overall rate for Fortune 500 companies was 14.6%, he adds.
He says one of his member companies, which he did not identify but which is primarily in the life insurance business, estimates that it will save between $21 million and $25 million annually with OFC simply by eliminating duplicate costs for materials, licensing and fees, technology and personnel.
“These figures, extrapolated across the breadth of the industry, are illustrative of the savings companies could afford consumers if insurance regulation were modernized,” Bartlett says.
Clearly, he says, insurance companies are not as healthy as other financial services companies under the present regulatory system.
“In fact, it is reasonable to assume that under the current state-based system, diversified financial services companies will continue to steer away from insurance as a core business,” Bartlett says.
Consumers, he says, will ultimately bear the cost in terms of reduced choice and convenience.