Optional Federal Charter Supporters Clash With Opponents At Hearing

“Our goal was not to replace or duplicate state insurance regulation but to create an alternative to state insurance regulation,” he said. “Optional chartering has worked well in the banking industry, and we saw no reason to believe it could not work well in the insurance industry.”

The ACLI and the ABIA, along with the American Insurance Association, a property-casualty company group, have proposed an optional federal charter bill. That bill, Liebowitz said, would establish a dual federal and state regulatory system modeled largely on the current system of bank regulation.

“In sum, the bill provides insurers and agencies a chartering and supervisory alternative to state insurance regulation,” said Liebowitz. “It does so in a manner that safeguards the interests of policyholders and the public-at-large. It also does so in a manner that preserves the integrity of state regulations. State authority over state-licensed insurers and agencies is untouched. State authority to tax all insurers and agencies is recognized. State guaranty systems are left in place.”

However, defending the current state-based regulatory system, New Yorks Serio said, “NAIC and the states are well under way in our efforts to modernize state regulation where improvements are needed while preserving the benefits of local consumer protection that is the real strength of state insurance regulation. With NAICs adoption in September 2003 of A Reinforced Commitment: Insurance Regulatory Modernization Action Plan, state regulators are on time and on target to accomplish changes needed to achieve a more efficient system of state-based national insurance regulation in the United States.”

In some areas, Serio said, “our goal is to achieve regulatory uniformity nationwide because it makes sense for both consumers and insurers. In areas where different standards among states are justified because they reflect regional market conditions, we are harmonizing state regulatory procedures to facilitate compliance by insurers and agents doing business in those markets.”

Serio continued, “Insurance is a complex commercial product that is very much different from banking and securities. Consequently, the process for regulating insurance products must also be different.”

Indeed, Serio said, “We strongly believe an effective system of national regulation does not mean federal regulation. Involving the federal government will not simplify the complexity of insurance issues, nor diminish their number, nor smooth the process of regulation. Instead, federal intervention in supervising insurance will simply add additional layers of uncertainty, confusion and cost for policyholders and claimants regarding who is in charge of supervising insurance payments when they are most vulnerable to the stresses of lifes disasters and personal losses.”

J. Robert Hunter, director of insurance for the Consumer Federation of America, criticized the OFC proposal in the strongest possible terms. “Consumer organizations strongly oppose an optional federal charter, where the regulated, at its sole discretion, gets to pick its regulator,” Hunter told the panel. “This is a prescription for regulatory arbitrage that only can undermine needed consumer protections,” he said.

“Indeed the drafters of such proposals have stated openly that this is their goal with the optional charter approach,” Hunter said. “If elements of the insurance industry truly want to obtain speed to market and other advantages through a federal regulator, let them propose a federal approach that does not allow insurers to run back to the states when regulation gets tougher. We could all debate the merits of that approach.

“CFA and the entire consumer community stand ready to fight optional charters with all the strength we can muster,” Hunter said.

“Consumers do not care who regulates insurance; we only care that the regulatory system be excellent,” Hunter said. “Consumer advocates have been [and are] critical of the current state-based system, but we are not willing to accept a federal system that guts consumer protections in the states and establishes one uniform but weak set of regulatory standards.”

Reproduced from National Underwriter Edition, September 23, 2004. Copyright 2004 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.