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February 19, 2004 at 07:00 PM
Recognizing that unity is all-important in legislative matters, the American Council of Life Insurers and the National Association of Insurance and Financial Advisors are again working hard to achieve a unified voice on Capitol Hill. This is a laudable goal and they are to be commended for it.
However, there will always be issues where company interests differ from those of the field, and I believe it is important that each side understands those differences and respects the sensitivities of the other.
Because the debate regarding federal vs. state regulation has resurfaced, I am re-running a column on this subject that I did some years ago with the hope that all parties will fully understand the concerns of the field.
An orderly marketplace will always be one of the highest priorities of the field force. One of the reasons I entered the insurance business was to escape the chaos that developed in my former business when the federal government overturned the “fair trade laws,” deeming them to be anti-competitive. The loss of anti-rebate laws and replacement regulation would most assuredly bring chaos to our marketplace.
With great regularity the subject arises as to whether or not the insurance industry should be regulated by federal agencies rather than state by state. Arguments pro and con tend to be the same, only the players are different. Given the long history of this issue, it seems incredible to me that so much energy should be put forth in these periodic reexaminations.
Proponents of federal regulation usually point to the potential savings in the administrative costs associated with policy filing and licensing as their primary justification for such a change. Added to this is the frustration often felt because of the slowness in getting approval in some states. Overlooked is the fact that a federal agency may act no swifter and this would impair operation in all states rather than just in the few tardy states.
Recently, proponents have added a new weapon to their arsenal of reasons to change. They argue that we need a federal champion to counter the aggressive action of bank regulators who seem to expand the activities of banks in the marketplace. I suspect that if they looked beyond bank regulation, they could find a good many industries that do not look upon their federal regulator as their “good buddy.”
As seductive as their arguments may be on the surface, I believe that further inquiry will reveal that on balance, we are still better off with state regulation. Certainly, this was the case the last time a move in this direction was attempted. About 10 years ago, there was a proposal put forth to repeal the anti-trust provisions of the McCarran-Ferguson Act, perhaps as a first step to repeal of the entire act. While individual companies may have operated as if the anti-trust exemptions did not exist, such was not the case with the industry as a whole. Careful examination revealed that such a repeal could cause the loss of certain practices the industry has used to the benefit of all parties, particularly the public.
Perhaps more importantly, the question should be: What would federal regulation look like? How would it likely differ from current state regulation? For starters, it is not likely such regulation would contain either replacement regulations or anti-rebate statutes. Such provisions, which are in some measure protected by our anti-trust exemption, would almost certainly be deemed anti-competitive, bringing us further into the jungle.
