The key issues that affect the life insurance industry, such as taxes and pensions, are federal in nature and there should be a federal authority with expertise in the insurance industry, says an industry representative.
In testimony before a Senate Commerce Committee panel on insurance regulation, Stephen E. Rahn, vice president and associate general counsel with Lincoln National, says the issue of product speed-to-market is only one of the life insurance industrys biggest concerns over the current regulatory system.
As important as speed-to-market, Rahn says in testimony on behalf of the American Council of Life Insurers, is the absence of a federal insurance office that could advise Congress on key issues involving life insurance.
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“The importance of insurance protection was underscored by the events of Sept. 11, as was the fact that it is in the national interest to have a federal authority with expertise and involvement in the U.S. insurance industry, given the industrys significant and substantial importance to the overall financial health of the nation,” Rahn says.
Rahns testimony came just a day before the industry was scheduled to defend corporate-owned life insurance before the Senate Finance Committee.
The industry contends that recent attacks on COLI are based on misunderstandings over the nature of the product and the current legal environment.
Rahn says the current regulatory system is not suited to the circumstances of todays marketplace.
In the past, he says, life insurers competed only against other life insurers, so the regulatory burden was spread equally. But now, Rahn says, life insurers are in direct competition with brokerages, commercial banks and mutual funds, which have far more efficient regulatory systems.
The National Association of Insurance Commissioners, Rahn says, has been trying to address the problems in the current system, but progress has been incremental, at best.
While ACLI continues to support efforts to improve state regulation, life insurers should be given the option of applying for a federal charter, he says.
But J. Robert Hunter, director of insurance for the Consumer Federation of America, says the optional federal chartering system sought by some insurers would lead to a “race to the bottom” as the competing regulatory systems reduce consumer protections in order to attract insurers.
Existing regulation is already too weak, Hunter says, stating that the NAIC has done absolutely nothing about unsuitable sales of insurance.
While insurance companies insist that speed-to-market is a critical issue, Hunter says, consumers are in no rush to have bad products appear in the market.
He says that because of the nature of life insurance, different types of regulation are needed.