He May Be My Brother, But He Is Getting Heavy

If the life insurance industry seriously intends to pursue optional federal chartering, then it needs to redefine the debate over insurance regulation.

It needs to separate itself, clearly and emphatically, from the property-casualty industry, creating its own unique identity as a provider of financial services.

Above all, it needs to re-educate the nations policymakers so they will think of life insurers in a new and distinct light, not just as simply one branch of a massive, amorphous “insurance industry.”

This may seem like a radical notion, but if one thing is clear from recent House and Senate hearings on insurance regulation, it is that this is necessary if optional federal chartering of life insurance companies is to have any chance of enactment in the foreseeable future.

OFC already is severely mired in concerns that have nothing to do with life insurance. Issues such as rate regulation, data collection and residual market mechanisms have no particular relevance to life insurance; they are largely, if not exclusively, p-c concerns.

But these are issues that members of Congress raise during their deliberations on OFC.

Meanwhile, the p-c industry itself is hopelessly divided. While one major p-c company association supports OFC, three others oppose it. Also opposing OFC is the p-c industrys largest producer group, which is suggesting minimum federal standards as an alternative.

It is impossible to imagine that Congress will enact something as significant as OFC, a departure from a century and a half of insurance regulation, when there is such powerful opposition coming from the “industry” itself.

The only answer is to change the way members of Congress think about the “industry.” The mental image of a monolithic multiline industry should be challenged.

Congress must be taught to see life insurance as a separate and distinct industry that needs a regulatory system separate and distinct from the p-c industry.

This simply reflects both the marketplace and regulatory reality.

While there are some common features between life insurance and p-c insurance, they are essentially different businesses. Many p-c products, such as auto insurance, homeowners insurance and workers compensation, are tied to underlying state tort and workers comp laws. Life insurance products largely have no special connection to underlying state laws.

P-c accounting is different from life insurance accounting. And the same is true of regulation. Every state insurance department in the country has a life insurance side and p-c side. They have entirely different staffs who are trained professionally in either life or p-c insurance.

For historical and perhaps linguistic reasons (common use of the word “insurance”), life and p-c insurance have been tied together as part of the same industry.

But the two businesses have moved away from one another and each deserves its own regulatory system.

Some in the life industry have described insurance regulation as a survival issue. If this is so, then the life insurance industry should not continue to allow the p-c industry to be a dead weight that drowns the regulatory system life insurers need.


Reproduced from National Underwriter Life & Health/Financial Services Edition, November 14, 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.