To The Editor:
For the last three years as a National Association of Insurance Commissioners officer and now president, I have sought to understand why a relatively small but vocal segment of the insurance industry is calling on Congress to create a federal regulator.
I always had heard the primary reason was insurers concerns about competition from banks, and the problem in a handful of states in getting useful products approved and available to consumers. This argument made little sense: The states regulate bank sales of insurance products, too.
The fact is state regulators have made a great deal of unprecedented progress in recent years in the areas of producer licensing, protection of consumers private information and speed-to-market. We have a one-stop filing system for all multistate insurance products, the System for Electronic Rate and Form Filing (“SERFF”). Through September of 2003, nearly 70,000 filings were made through SERFF, with about 40% of those being for life insurance products. State regulators continue to make significant progress in these and other areas.
Our unanimous passage of “A Reinforced Commitment: Insurance Regulatory Modernization Action Plan” at the NAICs fall meeting makes clear our strong commitment to consumer protection and regulatory modernization.
So what is the real reason some are pushing for federal regulation? Having made excellent progress, state regulators now hear from some of the proponents of federal regulation that their concern is not so much product competition from banks, but competition for the customer–for the customer relationships and lists and information banks possess–and the one-stop financial services shopping a bank can provide.
Another real concern is the inability of insurers to achieve the return on equity banks enjoy and statutory reserve requirements which tie up capital. Most insurers capitalization far exceeds the requirements of state risk-based capital and other laws so they can keep their ratings high. Perhaps the concern about capitalization is more a concern with rating agencies than it is state regulation and consumer protection laws.
It just may be now is the time for American regulators to move from a relatively static financial solvency analysis to a more modern, dynamic risk-based approach, one which will both protect consumers and allow flexibility for insurers. The current federal charter proposals do nothing to help in this regard. Instead, the current proposals would create a huge, new costly regulatory bureaucracy in Washington, D.C., which inevitably will mean the lowering of consumer protections, accountability and responsiveness; the loss of premium tax revenue for state governments and money for our guaranty funds; and dual or multiple layers of more costly regulation for producers and insurers.
The current Corporate-Owned Life Insurance debate in D.C., and the proposed increased taxes on life insurance products during the Clinton administration, etc., are prime evidence some in Congress see the insurance industry as a “cash cow”–a way to increase taxes indirectly for all of us who are insurance consumers–to pay for a vast array of new government spending.
What I have learned about the state vs. federal regulation debate this year has made me more committed than ever to state regulation, to improving consumer protection and creating truly efficient regulation, through regulatory modernization.
I respectfully request the proponents of federal regulation to support our efforts, and continue to help us identify needless costs and burdens that may exist in the current system.
The consumer expectations, culture and history of the insurance business are much different than banking or securities. This is true all over the world. Regulators need to hear what the real concerns are and exactly what we should consider to address them. We can work from there.
The prospect of success for consumers, state governments and the industry lies in improving our proven state-based system, not in the creation of a pie-in-the-sky federal regulator.
Mike Pickens Arkansas Insurance Commissioner 2003 NAIC President
Reproduced from National Underwriter Life & Health/Financial Services Edition, October 31, 2003. Copyright 2003 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.