ACLI Rebuts Pickens On His Fanciful Picture Of Progress
To the Editor: Your provocative editorial, “He May Be My Brother, But He Is Getting Heavy,” Nov. 17, and related letter, “Pickens Reflects on the Call by Some for Federal Regulation,” Nov. 3, by National Association of Insurance Commissioners President and Arkansas Insurance Commissioner Mike Pickens represent extremes in logic and accuracy on the issue of regulatory modernization.
You are right in pointing out that life insurers need to establish themselves as more than a branch of a massive “insurance industry.” That effort is well under way. We expect that in time the distinctions between life insurance and other insurance lines will be as clear to others as it is to us.
On the other hand, Commissioner Pickens offered the Underwriter reflections that were both surprising and deeply disappointing: surprising because he failed to demonstrate even a basic appreciation of the factors motivating a large and increasingly impatient segment of the insurance industry to seek a federal regulatory option, and disappointing in that he painted what can only be characterized as a fanciful picture of the progress states are making in their efforts to modernize the present regulatory environment.
Lets look at several of his reflections and then consider the facts.
Reflection: A relatively small segment of the insurance industry is calling for a federal regulator.
Fact: Almost all life insurers, a significant segment of the property/casualty industry, a growing universe of insurance agents and even a prominent national consumer organization advocate a federal regulator.
Reflection: Insurers want an optional federal charter because banks are competing with them through the sale of insurance products.
Fact: We have no competitive concern with banks selling insurance products. Its good for our business. We are concerned with the speed-to-market implications of banks and securities firms competing with their non-insurance products in the same markets (e.g., retirement security) that we address with life insurance products.
Reflection: The states have made “a great deal of unprecedented progress” on speed-to-market.
Fact: In the 3 years between the NAICs adoption of its first “Statement of Intent” and the publication of its latest “Action Plan,” no tangible speed-to-market reforms have been implemented. The NAIC is now committed to addressing this issue through an interstate compact. And the progress? One state has adopted compactin a form different from the model legislation. Even if the NAICs new Action Plan achieves its stated goal, the states will spend 5 more years working to get only 60% of the states to adopt the compact.
Reflection: A federal charter option would result in a loss of premium tax revenue for state governments.
Fact: One look at national banks makes clear that federally chartered and regulated financial intermediaries continue to pay state taxes. The same would hold true for national insurers and is explicitly provided for in our draft legislation. Insurers would fund the cost of a new federal regulator out of their own pockets and not through the use of federal tax dollars (which, incidentally, insurers already pay).
Reflection: Proponents of federal regulation should support states efforts to improve regulation.
Fact: As the commissioner well knows, the American Council of Life Insurers and all national insurance trade groups have been and continue to be committed to working with the NAIC and the states to achieve improvements to the state insurance regulatory system. Our collective efforts would, however, be more productive if the states were unanimous in their commitment to improve key aspects of state regulation (e.g., support for the interstate compact). Moreover, it would be interesting to see what progress could be made if lobbying initiatives such as ASSURE devoted as much time and effort to supporting specific improvements to state regulation as they do opposing federal involvement.
Pickens other reflectionson the NAICs “SERFF” project, the impact of statutory reserve requirements, the cost of federal insurance regulation, consumer protections under an Optional Federal Charter, guaranty fundsare equally misleading.
For life insurers, regulatory inefficiency is nothing short of a crisis. Indeed, a recent poll of the ACLI Board of Directors ranked it as the top concern of CEOs. If we fail to deal with the issue appropriately, we run the very real risk of marginalizing the life insurance business. And we should all bear in mind that it is this business–and none other–that makes products available to consumers that protect against lifes uncertainties and acts as a principal source of long-term capital for the U.S. economy.
Regulators and regulated alike must address this issue with the utmost seriousness and commitment. Unfortunately, a letter like that of Commissioner Pickens, which represents not only his views but purportedly those of the NAIC, belies the grave nature of the situation and does nothing to add constructively to the debate.
Senior Vice President & General Counsel
American Council of Life Insurers
Reproduced from National Underwriter Life & Health/Financial Services Edition, December 12, 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.