NU Online News Service, May 7, 2004, 6:17 p.m. EDT – A former president of the National Association of Insurance Commissioners and the head of the National Association of Insurance and Financial Advisors clashed today over proposals to create an optional federal insurance company charter.[@@]
Iowa Insurance Commissioner Terri Vaughan and NAIFA President Randy Kilgore talked about regulatory reform at a forum organized by NAIFA’s Iowa chapter.
The NAIC, Kansas City, Mo., has been defending the current state-run insurance regulatory system.
NAIFA, Falls Church, Va., has been supporting the idea of creating an optional federal charter while maintaining support for a state regulatory system.
Kilgore described some of the reasons for NAIFA’s position, citing the need to be “proactive” and the ongoing threat that Congress might tax the growth of assets inside life insurance policies.
NAIFA was advised to broaden its legislative focus and be part of discussions at the federal level while maintaining its support for state insurance regulation, Kilgore said.
Vaughan argued that an optional federal charter would not work for the insurance industry in the same way that the optional federal charter system has worked for banks.
The insurance industry is really a number of different industries, with life, property-casualty and health insurers having their own structures and needs, Vaughan said.
P-C companies are not clamoring for uniform standards because they say conditions vary widely from state to state, Vaughan said.
Life insurers, on the other hand, want a national system, which the NAIC has tried to provide through the Interstate Compact project and other projects, Vaughan said.
A national, state-based system makes sense for life insurers, but a federal-based system would not make sense, because consumers have a great deal more trouble understanding life insurance policies than they do with understanding typical consumer banking products, Vaughan said.
Vaughan said consumers make 3,000 complaints about insurers each year in Iowa and about 500,000 complaints each year in the United States as a whole. Because the complaint rate is so much higher for insurers, “it is a world that is vastly different from the world of banking,” Vaughan said.
Bank regulators can focus on safety and soundness, but insurance regulators must focus both on solvency and on regulation of market conduct, Vaughan said.