NU Online News Service, June 12, 5:12 p.m. — Washington
The stark divisions within the insurance industry over optional federal chartering erupted at a congressional hearing yesterday, with one member of Congress suggesting that a “tiered” system, which would apply OFC only to certain categories of business, might be in order.
The hearing, organized by a House Financial Services Subcommittee, revealed industry differences on two levels.
The first was between the life insurance industry and the property-casualty industry, as even the p-c opponents of OFC acknowledged that life insurers have different problems than p-c insurers and might have a better case for OFC.
The second level was within the p-c industry, with some p-c representatives saying that OFC is necessary for the future competitiveness of the industry, and others insisting that it could make insurance regulation even more burdensome and expensive.
Joseph Gasper, president of Nationwide Financial Services Inc., Columbus, Ohio, and chairman of the American Council of Life Insurers, Washington, called the current state regulatory system, a “competitive albatross.”
He noted that the system was designed when the life insurance industry was much different that it is today. Life insurers, Gasper said, no longer focus simply on traditional life insurance products.
The business today, he said, is about retirement security and long-term savings. In addition to competing against each other, life insurers must also compete against banks, mutual funds and securities firms, Gasper added.
Unfortunately, he said, these competitors have an advantage over life insurers in that they can develop products and bring them to market quickly, whereas life insurers might have to wait 18 months or more to get approval for new products from all jurisdictions.
Even then, he said, local variations may force life insurers to tweak a new product in a way that effectively transforms it from a single, national product into 30 or more different products.
“The current system is not designed to accommodate national companies, and it doesn’t,” Gasper said.
Tony Nicely, chairman of GEICO, Washington, said he understands Gasper’s concerns.
Nicely, who spoke on behalf of the National Association of Independent Insurers, Des Plaines, Ill., said that while he could not speak for NAII on the issue of establishing a life insurance-only federal charter, he personally would not oppose it.
But Nicely said he does oppose establishing OFC for p-c insurers.
While acknowledging that the state system needs reform, Nicely said that OFC would have severe consequences for p-c insurers.
“We believe that geographic and state conditions are such that customers’ needs differ from state to state,” he said.
Moreover, Nicely said, an OFC system could have a devastating effect on small and medium-sized insurers.
Under the current OFC proposals, he said, insurers would not be required to report loss data to advisory organizations such as Insurance Services Office, and indeed, might even be restrained from doing so because of federal antitrust exposure.
“Without the availability of aggregate-loss cost data, these smaller and mid-sized insurance companies would not have credible data and would be unable to compete with larger companies that can rely solely on their own data,” Nicely said.
He said he believes even the toughest states for p-c insurers, such as New Jersey, are starting to see the light on regulatory modernization and are moving towards reform.