On Federal Chartering, Life Insurers Must Be Prepared To Go It Alone
Next to taxation, optional federal chartering of insurance companies will likely be the major issue for the life insurance industry in the upcoming 108th Congress.
So vital are the competitive concerns surrounding insurance regulation that the American Council of Life Insurers has termed regulatory reform a “survival issue” for life insurance companies.
Indeed, unlike their counterparts in the property-casualty side of the business, life insurers compete directly against banks and securities firms, industries that are able to bring their products to market relatively quickly and on a national basis.
Banks and securities firms do not have to negotiate a Byzantine system of differing state bureaucracies nor adjust products that are national in nature to meet myriad and often parochial state regulatory standards.
If life insurance companies that sell investment-oriented products are to hold their own in a fast-changing financial world, they must have a regulatory structure suited to this competitive reality.
That is why we are concerned that as the debate over OFC and regulatory reform unfolds, the needs of the life insurance industry may become entangled with the disunity that characterizes the p-c industry, to the detriment of life insurers.
Currently, life insurers are working with some p-c insurers, as well as banks and securities firms, in a coalition aimed at promoting OFC.
But while life insurers, banks and securities firms are largely united on the issue, the broader p-c industry is utterly fractured.
One major company association and one major brokers group favor OFC, while three other company associations and two agent groups are opposed.
This is a classic scenario for legislative gridlock. Congress is always reluctant to put itself in the middle of an intra-industry battle, especially on something as revolutionary as creating a whole new government bureaucracy.
The life insurance industry cannot afford to allow its agenda to be dragged down by conflicts on the p-c side.
Therefore, while the current plan is to promote an industrywide OFC proposal, life insurers must be prepared to separate themselves from the p-c industry and seek a life insurance-only plan.
Doing so would simply acknowledge the fundamental differences between the life and p-c industries.
Except for certain specialty products, such as financial guarantees, p-c companies do not compete, either directly or indirectly, against banks.
Indeed, perhaps the decision by Citigroup to divest its p-c units reflects an assessment that the p-c business is not necessarily compatible with other financial services businesses.
These differences are already reflected at the state level, with each state insurance department having a life insurance side and a p-c side.
It should also be reflected at the federal level. The life insurance industry deserves a regulatory system tailored to its competitive needs.
It cannot allow the p-c insurance industry–with its different and disparate needs and agendas–to undermine that goal.
Reproduced from National Underwriter Life & Health/Financial Services Edition, December 2, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.