Study Finds Strong Case
For Federal Charter Option
Optional federal chartering could enhance both consumer protection and competition in the life insurance marketplace, a new study says.
The study finds that a dual insurance regulatory system, similar to the dual banking system, could streamline the product approval process, free up more resources for consumer protection oversight and encourage smaller companies to compete in multiple jurisdictions.
The study was conducted by former Treasury Department official Sheila C. Bair, who is now Deans Professor of Financial Regulatory Policy at the Isenberg School of Management of the University of Massachusetts, Amherst.
She released the study, which was funded by the life insurance industry, at a press briefing here last week.
Bair says the current structure of insurance regulation is resistant to the types of changes needed to improve competition and consumer protection.
She emphasizes that state insurance regulators exercise their duties with a high level of commitment and professionalism. However, Bair says, because the National Association of Insurance Commissioners lacks legal authority over individual insurance commissions, it cannot force agreements on uniform standards.
And even if an agreement could be reached, she says, it would be up to individual state legislatures to adopt model legislation, which they are unlikely to do without their own modifications.
As a result, Bair says, the current system for product review is cumbersome and inefficient.
Currently, according to Bair, there are on average 208 product filings per insurance department staff person per year. This heavy workload, she says, raises questions about the quality of product reviews.
Moreover, a survey of the 5 largest states in which life insurers do business shows that the average time for product approval ranges from 6 to 9 months, Bair says, adding that this inhibits the ability of life insurers to modify products in response to consumer demands and impairs their competition with banks and securities firms.
Similarly, Bair says, insurance department staffers have extremely high caseloads for producer licensing.